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PRINCIPLES 






OF 


POLITICAL ECONOMY 


WITH 


SOME OP THEIR APPLICATIONS TO SOCIAL PHILOSOPHY. 



BY 

JOHN STUART MILL. 

« 4 



people’s edition. 


LONDON: 

LONGMANS, GREEN, AND 00. 


MDOCCLXV. 




I 


H 6i 

' M Co 

t S45 


LONDON 5 

SAV1LL AND EDWARDS, PRINTERS, CHANDOS STREET 



ol 


C 



COVENT GARDEN 


PREFACE. 


The appearance of a treatise like the pre'sent, on a subject on which so 
many works of merit already exist, may be thought to require some 
explanation. 

It might perhaps be sufficient to say, that no existing treatise on 
Political Economy contains the latest improvements which have been 
made in the theory of the subject. Many new ideas, and new applica¬ 
tions of ideas, have been elicited by the discussions of the last few 
years, especially those on Currency, on Foreign Trade, and on the 
important topics connected more or less intimately with Colonization: 
and there seems reason that the field of Political Economy should be 
re-surveyed in its whole extent, if only for the purpose of incorporating 
the results of these speculations, and bringing them into harmony with 
the principles previously laid down by the best thinkers on the subject. 

To supply, however, these deficiencies in former treatises bearing a 
similar title, is not the sole, or even the principal object which the 
author has in view. The design of the book is different from that of 
any treatise on Political Economy which has been produced in England 
since the work of Adam Smith. 

The most characteristic quality of that work, and the one in which it 
most differs from some others which have equalled and even surpassed 
it as mere expositions of the general principles of the subject, is that it 
invariably associates the principles with their applications. This of 
itself implies a much wider range of ideas and of topics, than are 
included in Political Economy, considered as a branch of abstract specu¬ 
lation. Eor practical purposes, Political Economy is inseparably inter¬ 
twined with many other branches of social philosophy. Except on 
matters of mere detail, there are perhaps no practical questions, even 
among those which approach nearest to the character of purely econo¬ 
mical questions, which admit of being decided on economical premises 
alone. And it is because Adam Smith never loses sight of this truth; 
because, in his applications of Political Economy, he perpetually appeals 
to other and often far larger considerations than pure Political Economy 
affords—that he gives that well-grounded feeling of command over the 


vi PREFACE. 

principles of the subject for purposes of practice, owing to which 
the “ Wealth of Nations,” alone among treatises on Political Economy, 
has not only been popular with general readers, but has impressed 
itself strongly on the minds of men of the world and of legislators. 

It appears to the present writer, that a work similar in its object and 
general conception to that of Adam Smith, but adapted to the more 
extended knowledge and improved ideas of the present age, is the kind 
of contribution which Political Economy at present requires. The 
“Wealth of Nations” is in many parts obsolete, and in all, imperfect. 
Political Economy, properly so called, has grown up almost from 
infancy since the time of Adam Smith: and the philosophy of society, 
from which practically that eminent thinker never separated his more 
peculiar theme, though still in a very early stage of its progress, has 
advanced many steps beyond the point at which he left it. No 
attempt, however, has yet been made to combine his practical mode of 
treating his subject with the increased knowledge since acquired of its 
theory, or to exhibit the economical phenomena of society in the rela¬ 
tion in which they stand to the best social ideas of the present time, as 
he did, with such admirable success, in reference to the philosophy of 
his century. 

Such is the idea which the writer of the present work has kept before 
him. To succeed even partially in realizing it, would be a sufficiently 
useful achievement, to induce him to incur willingly all the chances of 
failure. It is requisite, however, to add, that although his object is 
practical, and, as far as the nature of the subject admits, popular, he 
has not attempted to purchase either of those advantages by the 
sacrifice of strict scientific reasoning. Though he desires that his 
treatise should be more than a mere exposition of the abstract doctrines 
of Political Economy, he is also desirous that such an exposition should 
be found in it. 


The present edition is an exact transcript from the sixth, except that 
all extracts and most phrases in foreign languages have been translated 
into English, and a very small number of quotations, or parts of quota¬ 
tions, which appeared superfluous, have been struck out. A reprint of 
an old controversy with the “ Quarterly Review” on the condition of 
landed property in France, which had been subjoined as an Appendix, 
has been dispensed with. 




CONTENTS. 


PiGF. 

Preliminary Remarks . . r \ 

BOOK I. 

PRODUCTION. 

Chapter I. Of the Requisites of Production . 

§ 1. Requisites of production, wliat.15 

2. The function of labour defined V.16 

3. Does nature contribute more to the efficacy of labour in some occu¬ 

pations than in others?.17 

4. Some natural agents limited, others practically unlimited, in 

quantity.17 

Chapter II. Of Labour as an Agent of Production. 

§ 1. Labour employed either directly about the thing produced, or in 

operations preparatory to its production.19 

2. Labour employed in producing subsistence for subsequent labour . 20 

3. — in producing materials.21 

4. — or implements.• . . . 22 

5. -— in the protection of labour.23 

6. — in file transport and distribution of the produce.24 

7. Labour which relates to human beings.25 

8. Labour of invention and discovery.26 

9. Labour agricultural, manufacturing, and commercial.27 

Chapter III. Of Unproductive Labour. 

§ 1. Labour does not produce objects, but utilities.28 

2. — which are of three kinds.29 

3. Productive labour is that which produces utilities fixed and em¬ 

bodied in material objects.30 

4. All other labour, however useful, is classed as unproductive . . 31 

5. Productive and Unproductive Consumption.32 

6. Labour for the supply of Productive Consumption, and labour for 

the supply of Unproductive Consumption.33 

Chapter IV. Of Capital. 

§ 1. Capital is wealth appropriated to reproductive employment ... 34 

2. More capital devoted to production than actually employed in It . 36 

3. Examination of some cases illustrative of the idea of capital . . 37 

a 2 



















vm • 


CONTENTS. 


Chapter V. Fundamental Propositions respecting Capital. 

PAGE 

§ 1. Industry is limited by Capital.39’ 

2. — but does not always come up to that limit.41 

3. Increase of capital gives increased employment to labour, without 

assignable bounds.41 

4. Capital is the result of saving.. 43 

5. All capital is consumed.44 

6 . Capital is kept up, not by preservation, but by perpetual repro¬ 

duction .46 

7. Why countries recover rapidly from a state of devastation ... 47 

8 . Effects of defraying government expenditure by loans .... 47 

9. Demand for commodities is not demand for labour.49 

10. Fallacy respecting Taxation.55 

Chapter VI. Of Circulating and Fixed Capital. 

§ 1 . Fixed and Circulating Capital, what.57 

2 . Increase of fixed capital, when at the expense of circulating, might 

be detrimental to the labourers.58 

3 . — but this seldom if ever occurs.61 

Chapter VII. On what depends the degree of Productiveness 

of Productive Agents. 

§ 1 . Land, labour, and capital, are of different productiveness at diffe¬ 
rent times and places.63 

2 . Causes of superior productiveness. Natural advantages ... 63 

3 ., — greater energy of labour. . 65 

4. — superior skill and knowledge. 66 

5. — superiority of intelligence and trustworthiness in the commu¬ 

nity generally . . . 67 

6 . — superior security.70 

Chapter VIII. Of Co-operation, or the Combination of Labour. 

§ 1 . Combination of Labour a principal cause of superior productiveness 71 

2. Effects of separation of employments analysed. 73 

3. Combination of labour between town and country. 74 

4. The higher degrees of the division of labour. 75 

5. Analysis of its advantages . 77 

6 . Limitations of the division of labour. 80 

Chapter IX. Of Production on a Large, and Production on 

a Small Scale. 

§ 1 . Advantages of the large system of production in manufactures . 81 

2 . Advantages and disadvantages of the joint-stock principle ... 84 

3. Conditions necessary for the large system of production .... 87 

4. Large and small farming compared . 39 

Chapter X. Of the Law of the Increase of Labour. 

§ 1 . The aw of the increase of production depends on those of three 

elements, Labour, Capital, and Land ..96 

2 . The Law of Population.. . 97 

3. By what checks the increase of population is practically limited . 98 

























Cl CO 


CONTENTS. ix 

Chapter XI. Of the Law of the Increase of Capital. 

PAGE 

§ 1. Means and motives to saving, on what dependent.100 

2. Causes of diversity in the effective strength of the desire ot* accu- 

nmlation .102 

3. Examples of deficiency in the strength of this desire.103 

4. Exemplification of its excess.107 

Chapter XII. Of the Law of the Increase of Production 

from Land. 

§ 1. The limited quantity and limited productiveness of land, the real 

limits to production.108 

2. The law of production from the soil, a law of diminishing return 

in proportion to the increased application of labour and capital . 109 

3. Antagonist principle to the law of diminishing return; the pro¬ 

gress of improvements in production.Ill 

Chapter XIII. Consequences of the foregoing Laws. 

§ 1. Remedies when the limit to production is the weakness of the 

principle of accumulation.117 

2. Necessity of restraining population noQ confined to a state of 

inequality of property.117 

3. — nor superseded by free trade in food.119 

4. —nor in general by emigration. . „ ... 121 

BOOK II. 

DISTRIBUTION. 

Chapter I. Of Property. 

.§ 1. Introductory remarks.123 

2. Statement of the question.124 

3. Examination of Communism.125 

4. — of St. Siinonism and Fourierism.130 

Chapter II. The same subject continued. 

g 1. The institution of property implies freedom of acquisition by con¬ 
tract .133 

. —the validity of prescription.134 

. — the power of bequest, but not the right of inheritance. Ques¬ 
tion of inheritance examined.135 

4. Should the right of bequest be limited, and how? .138 

5. Grounds of property in land, different from those of property in 

moveables.140 

6. — only valid on certain conditions, which are not always realized. 

The limitations considered.141 

7. Rights of property in abuses.144 





















CONTENTS. 


Chapter III. Of the Classes among whom the Produce 

is distributed. 

pa on 

§ 1. The produce sometimes shared amoqg three classes.145 

2. — sometimes belongs undividedly to one.145 

3. — sometimes divided between two.146 

Chapter IV. Of Competition and Custom. 

§ 1. Competition not the sole regulator of the division of the produce . 147 

2. Influence of custom on rents, and on the tenure of land . . . 148 

3. Influence of custom on prices .149 

Chapter V. Of Slavery. 

§ 1. Slavery considered in relation to the slaves.151 

2. — in relation to production.152 

3. Emancipation considered in relation to the interest of the slave¬ 

owners .153 

Chapter VI. Of Peasant Proprietors. 

§ 1. Difference between English and Continental opinions respecting 

peasant properties .155 

2. Evidence respecting peasant properties in Switzerland .... 156 

3. —in Norway. .159 

4. — in Germany.161 

5. — in Belgium.164 

6. — in the Channel Islands.167 

7. —in France.168 

Chapter VII. Continuation of the same subject. 

§ 1. Influence of peasant properties in stimulating industry .... 171 

2. — in training intelligence.172 

3. — in promoting forethought and self-control.173 

4. Their effect on population. 174 

5. — on the subdivision of land.180 

Chapter VIII. Of Metayers. 

§ 1. Nature of the metayer system, and its varieties.183 

2. Its advantages and inconveniences. 184 

3. Evidence concerning its effects in different countries.185 

4. Is its abolition desirable ?.. 191 

Chapter IX. Of Cottiers. 

§ 1 . Nature and operation of cottier tenure .I 93 : 

2 . In an overpeopled country its necessary consequence is nominal 

rents. 195 , 

3. — which are inconsistent with industry, frugality, or restraint on 

population.196 

4. Ryot tenancy of India. 197 
























CONTENTS. 


xi 


Chapter X. Means of abolishing Cottier Tenancy. 

PAGE 

§ 1. Irish cottiers should be converted into peasant proprietors . . . 199 

2 . Present state of this question.204 

Chapter XI. Of Wages. 

§ 1 . Wages depend on the demand and supply of labour—in other 

words, on population and capital.207 

2 . Examination of some popular opinions respecting wages . . . 208 

3. Certain rare circumstances excepted, high wages imply restraints 

on population. 211 

4. — which are in some cases legal.213 

5. — in others the effect of particular customs.214 

6 . Due restriction of population the only safeguard of a labouring 

class.216 

Chapter XII. Of Popular Remedies for Low Wages. 


§ 1 . A legal or customary minimum of wages, with a guarantee of 

employment .218 

2 . —would require as a condition, legal measures for repression of 

population.219 

3. Allowances in aid of wages.221 

4. The Allotment System.223 


Chapter XIII. The Remedies for Low Wages further 

considered. 

§ 1 . Pernicious direction of public opinion on the subject of population 225 

2. Grounds for expecting improvement.227 

3. Twofold means of elevating the habits of the labouring people: 

by education .230 

4. — and by large measures of immediate relief, through foreign and 

home colonization.231 

Chapter XIV. Of the Differences of Wages in different 

Employments. 

§ 1 . Differences of wages arising from different degrees of attractive¬ 


ness in different employments.233 

2. Differences arising from natural monopolies.236 

3. Effect on wages of a class of subsidized competitors.238 

4. — of the competition of persons with independent means of sup¬ 

port .240 

5. Wages of women, why lower than those of men.242 

6 . Differences of wages arising from restrictive laws, and from combi¬ 

nations .243 

7 . Cases in which wages are fixed by custom ........ 244 


Chapter XV. Of Profits. 

§ 1 . Profits resolvable into three parts; interest, insurance, and wages 

of superintendence.245 

2 . The minimum of profits ; and the variations to which it is liable . 246 






















xii CONTENTS. 

PAGE 

§ 3. Differences of profits arising from the nature of the particular em¬ 
ployment .247 

4. General tendency of profits to an equality.248 

5. Profits do not depend on prices, nor on purchase and sale . . . 251 

6 . The advances of the capitalist consist ultimately in wages of labour 252 

7. The rate of profit depends on the Cost of Labour.253 

Chapter XVI. Of Rent. 

§ 1 . Rent tlie effect of a natural monopoly.255 

2 . No land can pay rent except land of such quality or situation, as 

exists in less quantity than the demand.255 

3. The rent of land consists of the excess of its return above the 

return to the worst land in cultivation.257 

4. — or to the capital employed in the least advantageous circum¬ 

stances .258 

5. Is payment for capital sunk in the soil, rent, or profit? .... 259 

6 . Rent does not enter into the cost of production of agricultural 

produce.262 


BOOK III. 

EXCHANGE. 
Chapter I. Of Value. 


§ 1. Preliminary remarks.264 

2 . Definitions of Value in Use, Exchange Value, and Price. . . . 265 

3. What is meant by general purchasing power.265 

4. Value a relative term. A general rise or fall of Values a contra¬ 

diction .266 

5. The laws of Value, how modified in their application to retail 

transactions.267 


Chapter II. Of Remand and Supply, in their relation to Value. 


§ 1 . Two conditions of Value: Utility, and Difficulty of Attainment . 268 

2 . Three kinds of Difficulty of Attainment.269 

3. Commodities which are absolutely limited in quantity .... 270 

4. Law of their value, the Equation of Demand and Supply . . . 271 

5. Miscellaneous cases falling under this law.272 


Chapter III. Of Cost of Production, in its relation to Value. 

§ 1 . Commodities which are susceptible of indefinite multiplication 

without increase of cost. Law of their Value, Cost of Production 274 
2 . — operating through potential, but not actual, alterations of supply 275 

Chapter IV. Ultimate Analysis of Cost of Production. 

§ 1 . Principal clement iu Cost of Production—Quantity of Labour . . 277 

2 . Wages not an element in Cost of Production.278 

















CONTENTS. xiii 

PAGE 

§ 3. — except in so far as they vary from employment to employment 271) 

4. Profits an element in Cost of Production, in so far as they vary 

from employment to employment.' 280 

5. — or are spread over unequal lengths of time.281 

6 . Occasional elements in Cost of Production : taxes, and scarcity 

value of materials.\ 283 

Ghapter V. Of Bent, in its Betatron to Value. 

§ 1. Commodities which are susceptible of indefinite multiplication, but 
not without increase of cost. Law of their Value, Cost of Pro¬ 
duction in the most unfavourable existing circumstances . . . 285 

2. Such commodities, when produced in circumstances more favour¬ 

able, yield a rent equal to the difference of cost.286 

3. Pent of mines and fisheries, and ground-rent of buildings . . . 288 

4. Cases of extra profit analogous to rent.289 

Chapter VI. Summary of the Theory of Value. 

§ 1. The theory of Value recapitulated in a series of propositions . . 290 

2 . How modified by the case of labourers cultivating for subsistence . 292 

3. — by the case of slave labour.293 

Chapter YII. Of Money. 

§ 1. Purposes of a Circulating Medium.293 

2 . Gold and Silver, why fitted for those purposes.294 

3. Money a mere contrivance for facilitating exchanges, which does 

not affect the laws of Value.296 

Chapter YIII. Of the Value of Money, as dependent on 

Demand and Supply. 

.§ 1. Value of Money, an ambiguous expression.297 

2 . The value of money depends, caeteris paribus, on its quantity . . 298 

3. — together with the rapidity of circulation.300 

4. Explanations and limitations of this principle.301 

Chapter IX. Of the Value of Money, as dependent on 

Cost of Production. 

,§ 1. The value of money, in a state of freedom, conforms to the value of 

the bullion contained in it.303 

2. — which is determined by the cost of production.304 

3. This law, how related to the principle laid down in the preceding 

chapter.306 

Chapter X. Of a Double Standard, and Subsidiary Coins. 

§ 1. Objections to a double standard.307 

2. The use of the two metals as money, how obtained without making 

both of them legal tender.308 





















XIV 


CONTENTS. 


Chapter XI. Of Credit\ as a Substitute for Money. 

PAGE 

§ 1 . Credit not a creation but a transfer of the means of production . . 309 


2. In what manner it assists production.310 

3. Function of credit in economizing the use of money.311 

4. Bills of exchange.312 

5. Promissory’ notes. ..314 

6 - Deposits and cheques.315 


Chapter XII. Influence of Credit on Prices. 

§ 1. The influence of bank notes, bills, and cheques, on price, a part of 


the influence of Credit.316 

2. Credit a purchasing power similar to money.317 

3. Effects of great extensions and contractions of credit. Phenomena 

of a commercial crisis analysed.318 

4. Bills a more powerful instrument for acting on prices than book 

credits, and bank notes than bills.320 

5. —the distinction of little practical importance.322 

6 . Cheques an instrument for acting on prices, equally powerful with 

bank notes.324 

7. Are bank notes money ?.326 

8 . No generic distinction between bank notes and other forms of credit 327 


Chapter XIII. Of an Inconvertible Paper Currency. 

§ 1. The value of an inconvertible paper, depending on its quantity, is 

a matter of arbitrary regulation.•.328 

2 . If regulated by the price of bullion, an inconvertible currency 

might be safe, but not expedient.330 

3. Examination of the doctrine that an inconvertible currency is safe 

if representing actual property.331 

4. — of the doctrine that an increase of the currency promotes 

industry.332 

5. Depreciation of currency a tax on the community, and a fraud on 

creditors.334 

6 . Examination of some pleas for committing this fraud.334 

Chapter XIY. Of Excess of Supply. 

§ 1. Can there be an oversupply of commodities generally? .... 336 

2 . The supply of commodities in general, cannot exceed the power of 


purchase.’. ...... 337 

3. — never does exceed the inclination to consume.338 


4. Origin and explanation of the notion of general oversupply . . . 339 

Chapter XY. Of a Measure of Value. 

§ 1. A Measure of Exchange Value, in what sense possible .... 341 
2 . A Measure of Cost of Production.342 

Chapter XYI. Of some Peculiar Cases of Value. 

§ 1 . Values of commodities which have a joint cost of production . . 345 

2. Values of the different kinds of agricultural produce.344 





















CONTENTS. 


XV 


Chapter XVII. Of International Trade. 

PAGE 

§ 1. Cost of production not the regulator of international values . . . 347 

2. Interchange of commodities between distant places, determined by 

differences not in their absolute, but in their comparative, cost 
of production.348 

3. The direct benefits of commerce consist in increased efficiency of 

the productive powers of the world.349 

4. — not in a vent for exports, nor in the gains of merchants . . . 350 

5. Indirect benefits of commerce, economical and moral; still greater 

than the direct.351 

Chapter XVIII. Of International Values. 

§ 1. The values of imported commodities depend on the terms of inter¬ 
national interchange.352 

2. — which depend on the Equation of International Demand . . . 353 

3. Influence of cost of carriage on international values.356 

4. The law of values which holds between two countries, and two 

commodities, holds of any greater number.356 

5. Effect of improvements in production, on international values . . 358 

6. The preceding theory not complete.360 

7. International values depend not solely on the quantities demanded, 

but also on the means of production available in each country 
for the supply of foreign markets.361 

8. The practical result little affected by this additional element . . 363 

9. The cost to a country of its imports, on what circumstances 

dependent. 1 .365 

Chapter XIX. Of Money, considered as an Imported 

Commodity. 

§ 1. Money imported in two modes; as a commodity, and as a medium 

of exchange.367 

2. As a commodity, it obeys the same laws of value as other imported 

commodities . . ..367 

3. Its value does not depend exclusively on its cost of production at 

the mines.369 

Chapter XX. Of the Foreign Exchanges. 

§1. Purposes for which money passes from country to country as a 

medium of exchange.370 

2. Mode of adjusting international payments through the exchanges . 370 

3. Distinction between variations in the exchanges which are self- 

adjusting, and those which can only be rectified through prices. 373 

Chapter XXI. Of the Distribution of the Precious Metals 
through the Commercial World. 

§ 1. The substitution of money for barter makes no difference in exports 

and imports, nor in the law of international values.374 

2. The preceding theorem further illustrated.376 















XVI 


CONTENTS. 


PAGE 


§ 3. The precious metals, as money, are of the same value, and dis¬ 
tribute themselves according to the same law, witli the precious 

metals as a commodity.379 

4. International payments of a non-commercial character . . . . 379 

Chapter XXII. Influence of Currency on the Exchanges and 

on Foreign Trade . 

§ 1 . Variations in the exchange, which originate in the currency . . 380 

2 . Effect of a sudden increase of a metallic currency, or of the sudden 

creation of bank notes or other substitutes for money .... 381 

3. Effect of the increase of an inconvertible paper currency. Heal 

and nominal exchange.384 

Chapter XXIII. Of the Rate of Interest. 

§ 1 . The rate of interest depends on the demand and supply of loans . 385 

2 . Circumstances which determine the permanent demand and supply 


of loans.386 

3. Circumstances which determine the fluctuations.388 

4. The rate of interest, how far, and in what sense, connected with 

the value of money.390 

5. The rate of interest determines the price of land and of securities . 393 


Chapter XXIV. Of the Regulation qf a Convertible 

Taper Currency. 


§ 1 . Two contrary theories respecting the influence of bank issues . . 394 

2 . Examination of each.395 

3. Keasons for thinking that the Currency Act of 1844 produces a 

part of the beneficial effect intended by it. 397 

4. — but produces mischiefs more than equivalent.400 

5. Should the issue of bank notes be confined to a single esta¬ 

blishment ?.408 

6 . Should the holders of notes be protected in any peculiar manner 

against failure of payment ?.409 


Chapter XXV. Of the Competition of different Countries 

in the same Market. 


§ 1 . Causes winch enable one country to undersell another .... 410 

2 . Low wages one of those causes.411 

3. —when peculiar to certain branches of industry.412 

4. — but not w ? hen common to all.414 

5. Some anomalous cases of trading communities examined . . . . 414 


Chapter XXVI. Of Distribution, as affected by Exchange. 

§ 1 . Exchange and Money make no difference in the law of w ; ages . . 416 


2 . —in the law of rent. . . .417 

3. — nor in the law of profits.418 




















CONTENTS. 


xvn 


BOOK IY. 

INFLUENCE OF THE PROGRESS OF SOCIETY ON 
PRODUCTION AND DISTRIBUTION. 

Chapter I. General Characteristics of a Progressive Stale 

of Wealth. 

PAGE 

§ 1. Introductory Remarks.421 

2. Tendency of the progress of society towards increased command 
over the powers of nature; increased security; and increased 
capacity of co-operation.421 


Chapter II. Influence of the Progress of Industry and 
Population on Values and Prices. 

§ 1. Tendency to a decline of the value and cost of production of all 

commodities.424 

2. — except the products of agriculture and mining, which have a 

tendency to rise.425 

3. — that tendency from time to time counteracted by improvements 

in production.426 

4. Effect of the progress of society in moderating fluctuations of value 427 

5. Examination of the influence of speculators, and in particular of 

corn dealers.,428 


Chapter III. Influence of the Pwgress of Industry and 
Population on Pents, Profits, and Wages. 


§ 1. First case; population increasing, capital stationary. 

2. Second case ; capital increasing, population stationary . . . . 

- 3. Third case; population and capital increasing equally, the arts of 
production stationary. 

4. Fourth case; the arts of production progressive, capital and popu¬ 

lation stationary. 

5. Fifth case; all the three elements progressive. 


430 

432 

433 

433 

437 


Chapter IY. Of the Tendency of Profits to a Minimum. 


§ 1. Doctrine of Adam Smith on the competition of capital .... 439 

2. Doctrine of Mr. Wakefield respecting the field of employment . . 440 

3. What determines the minimum rate of profit.441 

4. In opulent countries, profits habitually near to the minimum . . 443 

5. — prevented from reaching it by commercial revulsions .... 444 

6. — by improvements in production.445 

7. — by the importation of cheap necessaries and instruments . . 446 

8. — by the emigration of capital.447 














xviii 


CONTENTS. 


Chapter V. Consequences of the Tendency of Profits to 

a Minimum. 


§ 1 . 

2 . 


Abstraction of capital not necessarily a national loss. 

In opulent countries, tire extension of machinery not detrimental 
but beneficial to labourers. 


PARE 

448 

450 


Chapter VI. Of the Stationary State. 

§ 1. Stationary state of wealth and population, dreaded and deprecated 


by writers.452 

2. — but not in itself undesirable.453 


Chapter VII. On the Probable Futurity of the Labouring 

Classes. 

§ 1. The theory of dependence and protection no longer applicable to 

the condition of modem society.455 

2. The future well-being of the labouring classes principally dependent 

on their own mental cultivation.458 

3. Probable effects of improved intelligence in causing a better 

adjustment of population—Would be promoted by the social 
independence of women.459 

4. Tendency of society towards the disuse of the relation of hiring 

and service.459 

5. Examples of the association of labourers with capitalists .... 461 

6. — of the association of labourers among themselves.465 

7. Competition not pernicious, but useful and indispensable. . . . 476 

BOOK V. 

OK THE INFLUENCE OF GOVERNMENT. 
Chapter I. Of the Functions of Government in general. 


§ 1. Necessary and optional functions of government distinguished . . 479 

2. Multifarious character of the necessary functions of government . 480 

3. Division of the subject.482 

Chapter II. Of the General Principles of Taxation. 

§ 1. Four fundamental rules of taxation.4S3 

2. Grounds of the principle of Equality of Taxation.484 

3. Should the same percentage be levied on all amounts of income? . 485 

4. Should the same percentage be levied on perpetual and on termi¬ 

nable incomes?.488 

5. The increase of the rent of land from natural causes a fit subject of 

peculiar taxation.492 

6. A land tax, in some cases, not taxation, but a rent-charge in favour 

of the public.493 

7. Taxes falling on capital, not necessarily objectionable .... 494 














CONTENTS. xix 

Chapter III. Of Direct Taxes. 

PAGE 

§ 1. Direct taxes either on income or on expenditure ...... 495 

2. Taxes on rent. 49 (j 

3. — on profits.49g 

4. — on wages.498 

5. An Income Tax.499 

6. A House Tax. 501 

Chapter IV. Of Taxes on Commodities. 

§ 1. A Tax on all Commodities would fall on profits.504 

2. Taxes on particular commodities fall on the consumer.505 

3. Peculiar effects of taxes on necessaries.506 

4. — how modified by the tendency of profits to a minimum . . . 507 

5. Effects of discriminating duties.510 

6. Effects produced on international exchange by duties on exports 

and on imports.512 

Chapter V. Of some other Taxes. 

§ 1. Taxes on contracts.517 

2. Taxes on communication.518 

3. Law Taxes.519 

4. Modes of taxation for local purposes.520 

Chapter VI. Comparison between Direct and Indirect 

Taxation. 

§ 1. Arguments for and against direct taxation.521 

2. What forms of indirect taxation most eligible.523 

3. Practical rules for indirect taxation.524 

Chapter VII. Of a National Debt. 

§ 1. Is it desirable to defray extraordinary public expenses by loans ? . 526 

2. Not desirable to redeem a national debt by a general contribution 528 

3. In what cases desirable to maintain a surplus revenue for the 

redemption of debt.529 

Chapter VIII. Of the Ordinary Functions of Government, 
considered as to their Economical Effects. 

§ 1. Effects of imperfect security of person and property.531 

2. Effects of over-taxation.532 

3. Effects of imperfection in the system of the laws, and in the admi¬ 

nistration of justice.533 

Chapter IX. The same subject continued. 

§ 1. Laws of Inheritance . . . 536 

2. Law and Custom of Primogeniture.537 

3. Entails.539 
























XX 


CONTENTS. 


PARE 

4. Law of compulsory equal division of inheritances.540 

5. Laws of Partnership.541 

6. Partnerships with limited liability. Chartered Companies . . . 542 

7. Partnerships in commandite .545 

8. Laws relating to insolvency...548 


Chapter X. Of Interferences of Government grounded on 

Erroneous Theories. 


bb'Z 

558 

561 

562 

563 
566 


§ 1. Doctrine of Protection to Native Industry 

2 . Usury Laws. 

3. Attempts to regulate the prices of commodities 

4. Monopolies. 

5. Laws against Combination of "Workmen . . 

6 . Restraints on opinion or on its publication 


Chapter XI. Of the Grounds and Limits of the Laisser-faire 
or Non-Interference Principle. 


§ 1. Governmental intervention distinguished into authoritative and 
unauthoritative. 

2. Objections to government intervention—the compulsory character 

of the intervention itself, or of the levy of funds to support it. . 

3. — increase of the power and influence of government. 

4. — increase of the occupations and responsibilities of government . 

5. — superior efficiency of private agency, owing to stronger interest 

in the work. 

6. — importance of cultivating habits of collective action in the 

people. 

7. Laisser-faire the general rule. 

8. — but liable to large exceptions. Cases in which the consumer is 

an incompetent judge of the commodity. Education . . . . 

9. Case of persons exercising power over others. Protection of chil¬ 

dren and young persons; of the lower animals. Case of women 
not analogous. 

10. Case of contracts in perpetuity. 

11. Cases of delegated management. 

12. Cases in which public intervention maybe necessary to give effect 

to the wishes of the persons interested. Examples : hours of 
labour; disposal of colonial lands. 

13. Case of acts done for the benefit of others than the persons con¬ 

cerned. Poor Laws. 

14. Colonization. 

15. — other miscellaneous examples. 

16. Government intervention may be necessary in default of private 

agency, in cases where private agency would be more suitable . 


567 

568 
570 

570 

571 

572 

573 

575 


577 

579 

579 


581 

583 

5S5 

589 

590 























PEINCIPLES 


OP 

POLITICAL ECONOMY. 


PRELIMINARY REMARKS. 


In every department of human affairs, 
Practice long precedes Science : sys¬ 
tematic enquiry into the modes of 
action of the powers of nature, is the 
tardy product of a long course of 
efforts to use those powers for practical 
ends. The conception, accordingly, of 
Political Economy as a branch of 
science, is extremely modern ; hut the 
subject with which its enquiries are 
conversant has in all ages necessarily 
constituted one of the chief practical 
interests of mankind, and, in some, a 
most unduly engrossing one. 

That subject is Wealth. Writers 
on Political Economy profess to teach, 
or to investigate, the nature of Wealth, 
and the laws of its production and dis¬ 
tribution : including, directly or re¬ 
motely, the operation of all the causes 
by which the condition of mankind, or 
of any society of human beings, in 
respect to this universal object of 
human desire, is made prosperous or 
the reverse. Not that any treatise on 
Political Economy can discuss or even 
enumerate all these causes; but it 
undertakes to set forth as much as is 
known of the laws and principles ac¬ 
cording to which they operate. 

Every one has a notion, sufficiently 
correct for common purposes, of what 
is meant by wealth. The enquiries 
which relate to it are in no danger of 
being confounded with those relating 
to any other of the great human in¬ 
terests. All know that it is one 
thing to be rich, another thing to be 
enlightened, brave, or humane ; that 


the questions how a nation is mado 
wealthy, and how it is made free, or 
virtuous, or eminent in literature, in, 
the fine arts, in arms, or in polity, 
are totally distinct enquiries. Those 
things, indeed, are all indirectly con¬ 
nected, and react upon one another. 
A people has sometimes become free, 
because it had first grown wealthy; or 
wealthy, because it had first become 
free. The creed and laws of a people 
act powerfully upon their economical 
condition ; and this again, by its influ¬ 
ence on their mental development and 
social relations, reacts upon their creed 
and laws. But though the subjects 
are in very close contact, they are 
essentially different, and have never 
been supposed to be otherwise. 

It is no part of the design of this 
treatise to aim at metaphysical nicety 
of definition, where the ideas suggested 
by a term are already as determinate 
as practical purposes require. But, 
little as it might be expected that any 
mischievous confusion of ideas coulcl 
take place on a subject so simple as 
the question, what is to be considered 
as wealth, it is matter of history that 
such confusion of ideas has existed— 
that theorists and practical politicians 
have been equally, and at one period 
universally, infected by it, and that 
for many generations it gave a tho¬ 
roughly false direction to the policy 
of Europe. I refer to the set of doc¬ 
trines designated, since the time of 
Adam Smith, by the appellation of the 
Mercantile System. 




PRELIMINARY REMARKS. 


2 

While this system prevailed, it was 
assumed, either expressly or tacitly, in 
the whole policy of nations, that wealth 
consisted solely of money; or of the 
precious metals, which, when not already 
in the state of money, are capable of 
being directly converted into it. Ac¬ 
cording to the doctrines then preva¬ 
lent, whatever tended to heap up 
money or bullion in a country added to 
its wealth. Whatever sent the precious 
metals out of a country impoverished 
it. If a country possessed no gold or 
silver mines, the only industry by 
which it could be enriched was foreign 
trade, being the only one which could 
bring in money. Any branch of trade 
which was supposed to send out more 
money than it brought in, however 
ample and valuable might be the re¬ 
turns in another shape, was looked 
upon as a losing trade. Exportation of 
goods was favoured and encouraged 
(even by means extremely onerous to 
the real resources of the country), be¬ 
cause the exported goods being stipu¬ 
lated to be paid for in money, it was 
hoped that the returns would actually 
be made in gold and silver. Importa¬ 
tion of anything, other than the preci¬ 
ous metals, was regarded as a loss to 
the nation of the whole price of the 
things imported; unless they were 
brought in to be re-exported at a profit, 
or unless, being the materials or in¬ 
struments of some industry practised 
in the country itself, they gave the 
power of producing exportable articles 
at smaller cost, and thereby effecting 
a larger exportation. The commerce 
of the world was looked upon as a 
struggle among nations, which could 
draw to itself the largest share of the 
gold and silver in existence ; and in 
this competition no nation could gain 
anything, except by making others 
lose as much, or, at the least, prevent¬ 
ing them from gaining it. 

It often happens that the universal 
belief of one age of mankind—a belief 
from which no one was, nor without 
an extraordinary effort of genius and 
courage, could at that time be free— 
becomes to a subsequent age so palpa¬ 
ble an absurdity, that the only difficulty 
then is to imagine how such a thing 


can ever have appeared credible. It 
has so happened with the doctrine that 
money is synonymous with wealth. 
The conceit seems too preposterous to 
be thought of as a serious opinion. It 
looks like one of the crude fancies of 
childhood, instantly corrected by a 
word from any grown person. But let 
no one feel confident that he would 
have escaped the delusion if he had 
lived at the time when it prevailed. 
All the associations engendered by 
common life, and by the ordinary course 
of business, concurred in promoting it. 
So long as those associations were the 
only medium through which the sub¬ 
ject was looked at, what we now 
think so gross an absurdity seemed a 
truism. Once questioned, indeed, it 
■was doomed ; but no one was likely to 
think of questioning it whose mind had 
not become familiar with certain modes 
of stating and of contemplating econo¬ 
mical phenomena, which have only 
found their way into the general 
understanding through the influence of 
Adam Smith and of his expositors. 

In common discourse, wealth is 
always expressed in money. If you 
ask how rich a person is, you are 
answered that he has so many thousand 
pounds. All income and expenditure, 
all gains and losses, everything by 
which one becomes richer or poorer, 
are reckoned as the coming in or going 
out of so much money. It is true that 
in the inventory of a person’s fortune 
are included, not only the money in 
his actual possession, or due to him, 
but all other articles of value. These, 
however, enter, not in their own cha¬ 
racter, but in virtue of the sums of 
money which they would Bell for ; and 
if they would sell for less, their owner 
is reputed less rich, though the things 
themselves are precisely the same. It 
is true, also, that people do not grow 
rich by keeping their money unused, 
and that they must be willing to 
spend in order to gain. Those who 
enrich themselves by commerce, do so 
by giving money for goods as well as 
goods for money; and the first is as 
necessary a part of the process as the 
last. But a person who buys goods 
for purposes of gain, does so to sell 




PRELIMINARY REMARKS. 


them again for money, and in the ex- 
ectation of receiving more money than 
e laid out: to get money, therefore, 
seems even to the person himself the 
ultimate end of the whole. It often 
happens that he is not paid in money, 
hut in something else ; having bought 
goods to a value equivalent, which are 
set off against those he sold. But he 
accepted these at a money valuation, 
and in the belief that they would 
bring in more money eventually than 
the price at which they were made 
over to him. A dealer doing a large 
amount of business, and turning over 
his capital rapidly, has but a small 
portion of it in ready money at any one 
time. But he only feels it valuable to 
him as it is convertible into money : he 
considers no transaction closed until 
the net result is either paid or credited 
in money: when he retires from busi¬ 
ness it is into money that he converts 
the whole, and not until then does be 
deem himself to have realized his 
gains : just as if money were the only 
wealth, and money’s worth were only 
the means of attaining it. If it be now 
asked for what end money is desirable, 
unless to supply the wants or pleasures 
of oneself or others, the champion of 
the system would not be at all embar¬ 
rassed by the question. True, he would 
say, these are the uses of wealth, and 
very laudable uses while confined to 
domestic commodities, because in that 
case, by exactly the amount which you 
expend, you enrich others of your 
countrymen. Spend your wealth, if 
you please, in whatever indulgences 
you have a taste for; but your wealth 
is not the indulgences, it is the sum 
of money, or the annual money income, 
with which you purchase them. 

While there were so many things to 
render the assumption which is the 
basis of the mercantile system plausi¬ 
ble, there is also some small foundation 
in reason, though a very insufficient 
one, for the distinction which that sys¬ 
tem so emphatically draws between 
money and every other kind of valua¬ 
ble possession. We really, and justly, 
look upon a person as possessing the 
advantages of wealth, not in proportion 
to the useful and agreeable things of 


3 

which he is in the actual enjoyment, 
but to his command over the general 
fund of things useful and agreeable; 
the power he possesses of providing for 
any exigency, or obtaining any object 
of desire. Now, money is itself that 
power; while all other things, in a 
civilized state, seem to confer it only 
by their capacity of being exchanged 
for money. To possess any other arti¬ 
cle of wealth, is to possess that par¬ 
ticular thing, and nothing else: if you 
wish for another thing instead of it, 
you have first to sell it, or to submit 
to the inconvenience and delay (if not 
the impossibility) of finding some one 
who has what you want, and is willing 
to barter it for what you have. But 
with money you are at once able to 
buy whatever things are for sale : and 
one whose fortune is in money, or in 
things rapidly convertible into it, seems 
both to himself and others to possess not 
any one thing, but all the things which 
the money places it at his option to 
purchase. The greatest part of the 
utility of wealth, beyond a very mode¬ 
rate quantity, is not the indulgences it 
procures, but the reserved power which 
its possessor holds in his hands of at¬ 
taining purposes generally ; and this 
power no other kind of wealth confers 
so immediately or so certainly as 
money. It is the only form of wealth 
which is not merely applicable to some 
one use, but can be turned at once to 
any use. And this distinction was the 
more likely to make an impression 
upon governments, as it is one of con¬ 
siderable importance to them. A civi¬ 
lized government derives comparatively 
little advantage from taxes unless it 
can collect them in money: and if it 
has large or sudden payments to make, 
especially payments in foreign countries 
for wars or subsidies, either for the sake 
of conquering or of not being conquered 
(the two chief objects of national policy 
until a late period), scarcely any 
medium of payment except money will 
serve the purpose. All these causes 
conspire to make both individuals and 
governments, in estimating their 
means, attach almost exclusive im¬ 
portance to money, either in esse or in 
posse , and look upon all other things 

B 2 




PRELIMINARY REMARKS. 


4 

(when viewed as part of their resources) 
scarcely otherwise than as the remote 
means of obtaining that which alone, 
when obtained, affords the indefinite, 
and at the same time instantaneous, 
command over objects of desire, which 
best answers to the idea of wealth. 

An absurdity, however, does not cease 
to b* an absurdity when we have dis¬ 
covered what were the appearances 
which made it plausible ; and the Mer¬ 
cantile Theory could not fail to be seen 
in its true character when men began, 
even in an imperfect manner, to explore 
into the foundations of things, and seek 
their premises from elementary facts, 
and not from the forms and phrases of 
common discourse. So soon as they 
asked themselves what is really meant 
by money—what it is in its essential 
characters, and the precise nature of 
the functions it performs—they reflected 
that money, like other things, is only 
a desirable possession on account of its 
uses ; and that these, instead of being, 
as they delusively appear, indefinite, 
are of a strictly defined and limited 
description, namely, to facilitate the 
distribution of the produce of industry 
according to the convenience of those 
among whom it is shared. Further 
consideration showed that the uses of 
money are in no respect promoted by 
increasing the quantity which exists 
and circulates in a country ; the service 
which it performs being as well rendered 
by a small as by a large aggregate 
amount. Two million quarters of corn 
will not feed so many persons as four 
millions; but two millions of pounds 
sterling will carry on as much traffic, 
will buy and sell as many commodities, 
as four millions, though at lower nomi¬ 
nal prices. Money, as money, satisfies 
no want; its worth to any one, consists 
in its being a convenient shape in which 
to receive his incomings of all sorts, 
which incomings he afterwards, at the 
times which suit him best, converts into 
the forms in which they can be useful 
to him. Great as the difference would 
be between a country with money, and 
a country altogether without it, it would 
be only one of convenience ; a saving of 
time and trouble, like grinding by water 
power instead of by hand, or (to use 


Adam Smith’s illustration) like the* 
benefit derived from roads ; and to mis¬ 
take money for wealth, is the same sort 
of error as to mistake the highway 
which may be the easiest way of get¬ 
ting to your house or lands, for the 
house and lands themselves. 

Money, being the instrument of an 
important public and private purpose, 
is rightly regarded as wealth; but 
everything else which serves any hu¬ 
man purpose, and which nature does 
not afford gratuitously, is wealth also. 
To be wealthy is to have a large stock 
of useful articles, or the means of pur¬ 
chasing them. Everything forms there¬ 
fore a part of wealth, which has a power 
of purchasing; for which anything use¬ 
ful or agreeable would be given in 
exchange. Things for which nothing 
could be obtained in exchange, how¬ 
ever useful or necessary they may be, 
are not wealth in the sense in which 
the term is used in Political Economy. 
Air, for example, though the most ab¬ 
solute of necessaries, bears no price in 
the market, because it can be obtained 
gratuitously: to accumulate a stock of 
it would yield no profit or advantage to 
any one ; and the laws of its produc¬ 
tion and distribution are the subject of 
a very different study from Political 
Economy. But though air is not wealth, 
mankind are much richer by obtaining 
it gratis, since the time and labour 
which would otherwise be required for 
supplying the most pressing of all wants, 
can be devoted to other purposes. It 
is possible to imagine circumstances in 
which air would be a part of wealth. 
If it became customary to sojourn long 
in places where the air does not natur¬ 
ally penetrate, as in diving-bells sunk 
in the sea, a supply of air artificially 
furnished would, like water conveyed 
into houses, bear a price : and if from 
any revolution in nature the atmosphere 
became too scanty for the consumption, 
or could be monopolized, air might ac¬ 
quire a very high marketable value. In 
such a case, the possession of it, beyond 
his own wants, would be, to its owner, 
wealth; and the general wealth of 
mankind might at first sight appear to 
be increased, by what would be so great 
a calamity to them. The error would 




PRELIMINARY REMARKS. 


lie in not considering;, that however 
rich the possessor of air might become 
at the expense of the rest of the com¬ 
munity, all persons else would be poorer 
by all that they were compelled to pay 
for what they had before obtained with¬ 
out payment. 

This leads to an important distinc¬ 
tion in the meaning of the word wealth, 
as applied to the possessions of an in¬ 
dividual, and to those of a nation, or of 
mankind. In the wealth of mankind, 
nothing is included which does not of 
itself answer some purpose of utility or 
pleasure. To an individual, anything 
is wealth, which, though useless in it¬ 
self, enables him to claim from others 
a part of their stock of things useful or 
pleasant. Take, for instance, a mort¬ 
gage of a thousand pounds on a landed 
estate. This is wealth to the person 
to whom it brings in a revenue, and 
who could perhaps sell it in the market 
for the full amount of the debt. But 
it is not wealth to the country ; if the 
engagement were annulled, the country 
would be neither poorer nor richer. The 
mortgagee would have lost a thousand 
pounds, and the owner of the land would 
have gained it. Speaking nationally, 
the mortgage was not itself wealth, but 
merely gave A a claim to a portion of 
the wealth of B. It was wealth to A, 
.and wealth which he could transfer to 
.a third person ; but what he so trans¬ 
ferred was in fact a joint ownership, to 
the extent of a thousand pounds, in the 
land of which B was nominally the 
sole proprietor. The position of fund- 
holders, or owners of the public debt of 
a country, is similar. They are mort¬ 
gagees on the general wealth of the 
country. The cancelling of the debt 
would be no destruction of wealth, but 
a transfer of it: a v'rongful abstraction 
of wealth from certain members of the 
community, for the profit of the govern¬ 
ment, or of the tax-payers. Funded 
property therefore cannot be counted 
as part of the national wealth. This 
is not always borne in mind by the 
dealers in statistical calculations. For 
example, in estimates of the gross in¬ 
come of the country, founded on the 
proceeds of the income-tax, incomes 
derived from the funds are not always 


5 

excluded: though the tax-payers are 
assessed on their whole nominal income, 
without being permitted to deduct from 
it the portion levied from them in taxa¬ 
tion to form the income of the fund- 
holder. In this calculation, therefore, 
one portion of the general income of the 
country is counted twice over, and the 
aggregate amount made to appear 
greater than it is by almost thirty mil¬ 
lions. A country, however, may include 
in its wealth all stock held by its citi¬ 
zens in the funds of foreign countries, 
and other debts due to them from 
abroad. But even this is only wealth 
to them by being a part ownership in 
wealth held by others. It forms no 
part of the collective wealth of the hu¬ 
man race. It is an element in the dis¬ 
tribution, but not in the composition, 
of the general wealth. 

It has been proposed to define wealth 
as signifying “instruments meaning 
not tools and machinery alone, but the 
whole accumulation possessed by indi¬ 
viduals or communities, of means for 
the attainment of their ends. Thus, a 
field is an instrument, because it is a 
means to the attainment of corn. Corn 
is an instrument, being a means to the 
attainment of flour. Flour is an instru¬ 
ment, being a means to the attainment 
of bread. Bread is an instrument, as a 
means to the satisfaction of hunger 
and to the support of life. Here we at 
last arrive at things which are not in¬ 
struments, being desired on their own 
account, and not as mere means to 
something beyond. This view of the 
subject is philosophically correct; or 
rather, this mode of expression may be 
usefully employed, along with others, not 
as conveying a different view of the sub¬ 
ject from the common one, but as giving 
more distinctness and reality to the 
common view. It departs, however, too 
widely from the custom of language, to 
be likely to obtain general acceptance, 
or to be of use for any other purpose 
than that of occasional illustration. 

Another example of a possession 
which is wealth to the person holding 
it, but not wealth to the nation, or to 
mankind, is slaves. It is by a strange 
confusion of ideas that slave property 
(as it is termed) is counted, at so much 



PRELIMINARY REMARKS. 


6 

per head, in an estimate of the wealth, 
or of the capital, of the country which 
tolerates the existence of such property. 
If a human being, considered as an 
object possessing productive powers, is 
part of the national wealth when his 
powers are owned by another man, he 
cannot be less a part of it when they 
are owned by himself. Whatever he 
is worth to his master is so much pro¬ 
perty abstracted from himself, and its 
abstraction cannot augment the posses¬ 
sions of the two together, or of the 
country to which they both belong. In 
propriety of classification, however, the 
people of a country are not to be counted 
in its wealth. They are that for the 
sake of which its ■wealth exists. The 
term wealth is wanted to denote the de¬ 
sirable objects which they possess, not 
inclusive of, but in contradistinction to, 
their own persons. They are not wealth 
to themselves, though they are means 
of acquiring it. 

Wealth, then, may be defined, all 
useful or agreeable things which possess 
exchangeable value ; or, in other words, 
all useful or agreeable things except 
those which can be obtained, in the 
quantity desired, without labour or sa¬ 
crifice. To this definition, the only 
objection seems to be, that it leaves in 
uncertainty a question which has been 
much debated—wdietherwhat are called 
immaterial products are to be considered 
as wealth: whether, for example, the 
skill of a workman, or any other natural 
or acquired pow r er of body or mind, shall 
be called wealth, or not: a question, 
not of very great importance, and 
which, so far as requiring discussion, 
will be more conveniently considered in 
another place.* 

These things having been premised 
respecting w r ealth, we shall next turn 
our attention to the extraordinary dif¬ 
ferences in respect to it, which exist 
between nation and nation, and be¬ 
tween different ages of the world; dif¬ 
ferences both in the quantit)' of wealth, 
and in the kind of it; as well as in the 
manner in which the wealth existing 
in the community is shared among its 
members. 

There is, perhaps, no people or com- 
Infra, book i. chap. iii. 


munity, now' existing, which subsists 
entirely on the spontaneous produce of 
vegetation. But many tribes still live 
exclusively, or almost exclusively, on 
wild animals, the produce of hunting or 
fishing. Their clothing is skins ; their 
habitations, huts rudely formed of logs 
or boughs of trees, and abandoned at 
an hour’s notice. The food they use 
being little susceptible of storing up, 
they have no accumulation of it, and 
are often exposed to great privations. 
The w’ealth of such a community con¬ 
sists solely of the skins they w r ear; a 
few ornaments, the taste for which 
exists among most savages ; some rude 
utensils ; the weapons with which they 
kill their game, or fight against hostile 
competitors for the meansof subsistence; 
canoes for crossing rivers and lakes, or 
fishing in the sea; and perhaps some 
furs or other productions of the wilder¬ 
ness, collected to be exchanged with 
civilized people for blankets, brandy, 
and tobacco ; of which foreign produce 
also there may be some unconsumed 
portion in store. To this scanty in¬ 
ventory of material w'ealth, ought to be 
added their land; an instrument of 
production of which they make slender 
use, compared with more settled com¬ 
munities, but which is still the source 
of their subsistence, and which has a 
marketable value if there be any agri¬ 
cultural community in the neighbour¬ 
hood requiring more land than it pos¬ 
sesses. This is the state of greatest 
poverty in which any entire community 
of human beings is known to exist; 
though there are much richer commu¬ 
nities in which portions of the inhabit¬ 
ants are in a condition, as to subsist¬ 
ence and comfort, as little enviable as 
that of the savage. 

The first great advance beyond this 
state iconsists in the domestication of 
the more useful animals; giving rise to 
the pastoral or nomad state, in which 
mankind do not live on the produce of 
hunting, but on milk and its -products, 
and on the annual increase of flocks 
and herds. This condition is not only 
more desirable in itself, but more con¬ 
ducive to further progress; and a much 
more considerable amount of w'ealtJi is 
accumulated under it. So long as the 



PRELIMINARY REMARKS. 7 


vast natural pastures of the earth are 
not yet so fully occupied as to he con¬ 
sumed more rapidly than they are 
spontaneously reproduced, a large and 
constantly increasing stock of subsist¬ 
ence may be collected and preserved, 
with little other labour than that of 
guarding the cattle from the attacks of 
wild beasts, and from the force or wiles 
ot predatory men. Large flocks and 
herds, therefore, are in time possessed, 
by active and thrifty individuals through 
their own exertions, and by the heads 
of families and tribes through the ex¬ 
ertions of those who are connected with 
them by allegiance. There thus arises, 
in the shepherd state, inequality of 
possessions; a thing which scarcely 
exists in the savage state, where no 
one has much more than absolute ne¬ 
cessaries, and in case of deficiency must 
share even those with his tribe. In the 
nomad state, some have an abundance 
of cattle, sufficient for the food of a mul¬ 
titude, while others have not contrived 
to appropriate and retain any super¬ 
fluity, or perhaps any cattle at all. But 
subsistence has ceased to be precarious, 
since the more successful have no other 
use which they can make of their sur¬ 
plus than to feed the less fortunate, 
while every increase in the number of 
persons connected with them is an in¬ 
crease both of security and of power: 
and thus they are enabled to divest 
themselves of all labour except that of 
government and superintendence, and 
acquire dependents to fight for them in 
war and to serve them in peace. One 
of the features of this state of society 
is, that a part of the community, and 
in some degree even the whole of it, 
possess leisure. Only a portion of time 
is required for procuring food, and the 
remainder is not engrossed by anxious 
thought for the morrow, or necessary 
repose from muscular activity. Such 
a life is highly favourable to the growth 
of new wants, and opens a possibility 
of their gratification. A desire arises 
for better clothing, utensils, and imple¬ 
ments, than the savage state contents 
itself wfith ; and the surplus food ren¬ 
ders it practicable to devote to these 
purposes the exertions of a part of the 
tribe. In all or most nomad commu¬ 


nities w r e find domestic Manufactures 
of a coarse, and in some, of a fine kind. 
There is ample evidence that while 
those parts of the world which have 
been the cradle of modern civilization 
were still generally in the nomad state, 
considerable skill had been attained in 
spinning, weaving, and dyeing woollen 
garments, in the preparation of leather, 
and in wffiat appears a still more diffi¬ 
cult invention, that of working in metals. 
Even speculative science took its first 
beginnings from the leisure character¬ 
istic of this stage of social progress. 
The earliest astronomical observations 
are attributed, by a tradition which has 
much appearance of truth, to the shep¬ 
herds of Chaldaea. 

From this state of society to the 
agricultural the transition is not indeed 
easy, (for no great change in the habits 
of mankind is otherwise than difficult, 
and in general either painful or very 
slow,) but it lies in wdiat may be called 
the spontaneous course of events. The 
grow r th of the population of men and 
cattle began in time to press upon the 
earth’s capabilities of yielding natural 
pasture : and this cause doubtless pro¬ 
duced the first tilling of the ground, 
just as at a later period the same cause 
made the superfluous hordes of the 
nations wdiich had remained nomad 
precipitate themselves upon those 
which had already become agricul¬ 
tural ; until, these having become suf¬ 
ficiently powerful to repel such inroads, 
the invading nations, deprived of this 
outlet, w r ere obliged also to become 
agricultural communities. 

But after this great step had been 
completed, the subsequent progress of 
mankind seems by no means to have 
been so rapid (certain rare combina¬ 
tions of circumstances excepted) as 
might perhaps have been anticipated. 
The quantity of human food which the 
earth is capable of returning even to 
the most wu'etched system of agricul¬ 
ture, so much exceeds what could be 
obtained in the purely pastoral state, 
that a great increase of population is 
invariably the result. But this addi¬ 
tional food is only obtained by a great 
additional amount of labour; so that 
not only an agricultural has much less 



PRELIMINARY REMARKS. 


S 

leisure than a pastoral population, but, 
with the imperfect tools and unskilful 
processes which are for a long time 
employed (and which over the greater 
part of the earth have not even yet 
been abandoned), agriculturists do not, 
unless in unusually advantageous cir¬ 
cumstances of climate and soil, produce 
so great a surplus of food beyond their 
necessary consumption, as to support 
any large class of labourers engaged in 
other departments of industry. The 
surplus, too, whether small or great, is 
usually torn from the producers, either 
by the government to which they are 
subject, or by individuals, who by 
superior force, or by availing them¬ 
selves of religious or traditional feel¬ 
ings of subordination, have established 
themselves as lords of the soil. 

The first of these modes of appro¬ 
priation, by the government, is cha¬ 
racteristic of the extensive monarchies 
which from a time beyond historical 
record have occupied the plains of 
Asia. The government, in those coun¬ 
tries, though varying in its qualities 
according to the accidents of personal 
character, seldom leaves much to the 
cultivators beyond mere necessaries, 
and often strips them so bare even of 
these, that it finds itself obliged, after 
taking all they have, to lend part of it 
back to those from whom it has been 
taken, in order to provide them with seed, 
and enable them to support life until an¬ 
other harvest. Under the regime in 
question, though the bulk of the popu¬ 
lation are ill provided for, the govern¬ 
ment, by collecting small contributions 
from great numbers, is enabled, with 
any tolerable management, to make a 
show of riches quite out of proportion 
to the general condition of the society; 
and hence the inveterate impression, 
of which Europeans have only at a late 
period been disabused, concerning the 
great opulence of Oriental nations. In 
this wealth, without reckoning the 
large portion which adheres to the 
hands employed in collecting it, many 
persons of course participate, besides 
the immediate household of the sove¬ 
reign. A large part is distributed 
among the various functionaries of go¬ 


vernment, and among the objects of 
the sovereign’s favour or caprice. A 
part is occasionally employed in works 
of public utility. The tanks, wells, 
and canals for irrigation, without which 
in many tropical climates cultivation 
could hardly be carried on ; the em¬ 
bankments which confine the rivers, 
the bazars for dealers, and the seraees 
for travellers, none of which could have 
been made by the scanty means in the 
possession of those using them, owe 
their existence to the liberality and 
enlightened self-interest of the better 
order of princes, or to the benevolence 
or ostentation of here and there a rich 
individual, whose fortune, if traced to 
its source, is always found to have been 
drawn immediately or remotely from 
the public revenue, most frequently by 
a direct grant of a portion of it from 
the sovereign. 

The ruler of a society of this descrip¬ 
tion, after providing largely for his 
own support, and that of all persons in 
whom he feels an interest, and after 
maintaining as many soldiers as he 
thinks needful for his security or his 
state, has a disposable residue, which 
he is glad to exchange for articles of 
luxury suitable to his disposition: as 
have also the class of persons who 
have been enriched by his favour, or by 
handling the public revenues. A de- 
mandthus arises for elaborate and costly 
manufactured articles, adapted to a 
narrow but a wealthy market. This 
demand is often supplied almost ex¬ 
clusively by the merchants of more 
advanced communities, but often also 
raises up in the country itself a class 
of artificers, by whom certain fabrics 
are carried to as high excellence as 
can be given by patience, quickness 
of perception and observation, and 
manual dexterity, without any con¬ 
siderable knowledge of the properties 
of objects : such as some of the cotton 
fabrics of India. These artificers are 
fed by the surplus food which has 
been taken by the government and its 
agents as their share of the produce. 
So literally is this the case, that in 
some countries the workman, instead 
of taking the work home, and being 



PRELIMINARY REMARKS. 


paid for it after it is finished, proceeds 
with his tools to his customer’s house, 
and is there subsisted until the work is 
complete. The insecurity, however, of 
all possessions in this state of society, 
induces even the richest purchasers to 
give a preference to such articles as, 
being of an imperishable nature, and 
containing great value in small hulk, 
are adapted for being concealed or car¬ 
ried off. Gold and jewels, therefore, 
constitute a large proportion of the 
wealth of these nations, and many a 
rich Asiatic carries nearly his whole 
fortune on his person, or on those of 
the women of his harem. No one, 
except the monarch, thinks of invest¬ 
ing his wealth in a manner not suscep¬ 
tible of removal. He, indeed, if he 
feels safe on his throne, and reasonably 
secure of transmitting it to his descen¬ 
dants, sometimes indulges a taste for 
durable edifices, and produces the 
Pyramids, or the Taj Mehal and the 
Mausoleum at Sekundra. The rude 
manufactures destined for the wants of 
the cultivators are worked up by vil¬ 
lage artisans, who are remunerated by 
land given to them rent-free to culti¬ 
vate, or by fees paid to them in kind 
from such share of the crop as is left 
to the villagers by the government. 
This state of society, however, is not 
destitute of a mercantile class; com¬ 
posed of two divisions, grain dealers 
and money dealers. The grain dealers 
* do not usually buy grain from the pro¬ 
ducers, but from the agents of govern¬ 
ment, who, receiving the revenue in 
kind, are glad to devolve upon others 
the business of conveying it to the 
places where the prince, his chief civil 
and military officers, the hulk of his 
troops, and the artisans who supply 
the wants of these various persons, are 
assembled. The money dealers lend 
to the unfortunate cultivators, when 
ruined by bad seasons or fiscal exac¬ 
tions, the means of supporting life and 
continuing their cultivation, and are 
repaid with enormous interest at the 
next harvest: or, on a larger scale, 
they lend to the government, or to 
those to whom it has granted a portion 
of the revenue, and are indemnified by 


9 

assignments on the revenue collectors, 
or by having certain districts put into 
their possession,that they may pay them¬ 
selves from the revenues; to enable 
them to do which, a great portion of 
the powers of government are usually 
made over simultaneously, to be exer¬ 
cised by them until either the districts 
are redeemed, or their receipts have 
liquidated the debt. Thus, the com¬ 
mercial operations of both these classes 
of dealers take place principally upon 
that part of the produce of the country 
which forms the revenue of the govern¬ 
ment. From that revenue their capital 
is periodically replaced with a profit, 
and that is also the source from which 
their original funds have almost always 
been derived. Such, in its general 
features, is the economical condition of 
most of the countries of Asia, as it has 
been from beyond the commencement 
of authentic history, and is still, wher¬ 
ever not disturbed by foreign influ¬ 
ences. 

In the agricultural communities of 
ancient Europe whose early condition 
is best known to us, the course of 
things was different. These, at their 
origin, were mostly small town-commu¬ 
nities, at the first plantation of which, 
in an unoccupied country, or in one 
from which the former inhabitants had 
been expelled, the land which was 
taken possession of was regularly 
divided, in equal or in graduated allot¬ 
ments, among the families composing 
the community. In some cases, in¬ 
stead of a town there was a confedera¬ 
tion of towns, occupied by people of the 
same reputed race, and who were sup¬ 
posed to have settled in the country 
about the same time. Each family 
produced its own food and the mate¬ 
rials of its clothing, which were worked 
up within itself, usually by the women 
of the family, into the coarse fabrics 
with which the age was contented. 
Taxes there were none, as there were 
either no paid officers of government, 
or if there were, their payment had 
been provided for by a reserved portion 
of land, cultivated by slaves on account 
of the state ; and the army consisted 
of the body of citizens. The whole 



PRELIMINARY REMARKS. 


10 

produce of the soil, therefore, belonged, 
without deduction, to the family which 
cultivated it. So long as the progress 
of events permitted this disposition of 
property to last, the state of society 
was, for the majority of the free culti¬ 
vators, probably not an undesirable 
one; and under it, in some cases, the 
advance of mankind in intellectual cul¬ 
ture was extraordinarily rapid and 
brilliant. This more especially hap¬ 
pened where, along with advantageous 
circumstances of race and climate, and 
no doubt with many favourable acci¬ 
dents of which all trace is now lost, 
was combined the advantage of a 
position on the shores of a great inland 
sea, the other coasts of which were 
already occupied by settled commu¬ 
nities. The knowledge which in such 
a position was acquired of foreign pro¬ 
ductions, and the easy access of foreign 
ideas and inventions, made the chain 
of routine, usually so strong in a rude 
people, hang loosely on these commu¬ 
nities. To speak only of their indus¬ 
trial development; they early acquired 
variety of wants and desires, which 
stimulated them to extract from their 
own soil the utmost which they knew 
how to make it yield ; and when their 
soil was sterile, or after they had 
reached the limit of its capacity, they 
often became traders, and bought up 
the productions of foreign countries, to 
sell them in other countries with a 
profit. 

The duration, however, of this state 
of things was from the first precarious. 
These little communities lived in a 
state of almost perpetual war. For 
this there were many causes. In the 
ruder and purely agricultural commu¬ 
nities a frequent cause was the mere 
pressure of their increasing population 
upon their limited land, aggravated as 
that pressure so often was by deficient 
harvests in the rude state of their agri¬ 
culture, and depending as they did for 
food upon a very small extent of coun¬ 
try. On these occasions, the commu¬ 
nity often emigrated in a body, or sent 
forth a swarm of its youth, to seek, 
sword in hand, for some less warlike 
people, who could be expelled from their 
land, or detained to cultivate it as 


slaves for the benefit of their despoilers. 
What the less advanced tribes did 
from necessity, the more prosperous 
did from ambition and fhe military 
spirit: and after a time the whole of 
these city-communities -were either 
conquerors or conquered. In some 
cases, the conquering state contented 
itself with imposing a tribute on the 
vanquished: who being, in considera¬ 
tion of that burden, freed from the ex¬ 
pense and trouble of their own military 
and naval protection, might enjoy 
under it a considerable share of econo¬ 
mical prosperity, while the ascendant 
community obtained a surplus of 
wealth, available for purposes of collec¬ 
tive luxury or magnificence. From 
such a surplus the Parthenon and the 
Propylsea were built, the sculptures of 
Pheidias paid for, and the festivals 
celebrated, for which iEschylus, Sopho¬ 
cles, Euripides, and Aristophanes com¬ 
posed their dramas. But this state of 
political relations, most useful, while it 
lasted, to the progress and ultimate 
interest of mankind, had not the ele¬ 
ments of durability. A small conquer¬ 
ing community which does not incor¬ 
porate its conquests, always ends by 
being conquered. Universal dominion, 
therefore, at last rested with the 
people who practised this art—with the 
Romans; who, whatever were their 
other devices, always either began or 
ended by taking a great part of the 
land to enrich their own leading citi¬ 
zens, and by adopting into the govern¬ 
ing body the principal possessors of the 
remainder. It is unnecessary to dwell 
on the melancholy economical history 
of the Roman empire. When in¬ 
equality of wealth once commences, in 
a community not constantly engaged 
in repairing by industry the injuries of 
fortune, its advances are gigantic; the 
great masses of wealth swallow up the 
smaller. The Roman empire ulti¬ 
mately became covered with the vast 
landed possessions of a comparatively 
few families, for whose luxury, and 
still more for whose ostentation, the 
most costly products were raised, while 
the cultivators of the soil were slaves, 
or small tenants in a nearly servile 
condition. From this time the wealth 




11 


PRELIMINARY REMARKS. 


of the empire progressively declined. 
In the beginning, the public revenues, 
and the resources of rich individuals, 
sufficed at least to cover Italy with 
splendid edifices, public and private : 
but at length so dwindled under the 
enervating influences of misgoverninent, 
that what remained was not even suffi¬ 
cient to keep those edifices from decay. 
The strength and riches of the civilized 
world became inadequate to make head 
against the nomad population which 
skirted its northern frontier: they 
overran the empire, and a different 
order of things succeeded. 

In the new frame in which European 
society was now cast, the population 
of each country may be considered as 
composed, in unequal proportions, of 
two distinct nations or races, the con¬ 
querors and the conquered : the first the 
proprietors of the land, the latter the 
tillers of it. These tillers were allowed 
to occupy the land on conditions which, 
being the product of force, were always 
onerous, but seldom to the extent of 
absolute slavery. Already, in the later 
times of the Roman empire, predial 
slavery had extensively transformed 
itself into a kind of serfdom : the coloni 
of the Romans were rather villeins than 
actual slaves ; and the incapacity and 
distaste of the barbarian conquerors 
for personally superintending industrial 
occupations, left no alternative but to 
allow to the cultivators, as an incentive 
to exertion, some real interest in the 
soil. If, for example, they were com¬ 
pelled to labour, three days in the 
week, for their superior, the produce of 
the remaining days was their own. If 
they were required to supply the pro¬ 
visions of various sorts, ordinarily 
needed for the consumption of the 
castle, and were often subject to 
requisitions in excess, yet after sup¬ 
plying these demands they -were suf¬ 
fered to dispose at their will of what¬ 
ever additional produce they could 
raise. Under this system during the 
Middle Ages it was not impossible, no 
more than in modern Russia (where, 
up to the recent measure of emancipa¬ 
tion, the same system still essentially 
prevailed) for serfs to acquire property ; 
and in fact, their accumulations are the 


primitive source of the wealth of 
modern Europe. 

In that age of violence and disorder, 
the first use made by a serf of any small 
provision which he had been able to 
accumulate, was to buy his freedom 
and withdraw himself to some town or 
fortified village, which had remained 
undestroyed from the time of the Ro¬ 
man dominion; or, without buying his 
freedom, to abscond thither. In that 
place of refuge, surrounded by others of 
his own class, he attempted to live, se¬ 
cured in some measure from the out¬ 
rages and exactions of the warrior caste, 
by his own prowess and that of his fel¬ 
lows. These emancipated serfs mostly 
became artificers; and lived by ex¬ 
changing the produce of their industry 
for the surplus food and material which 
the soil yielded to its feudal proprietors. 
This gave rise to a sort of European 
counterpart of the economical condition 
of Asiatic countries; except that, in 
lieu of a single monarch and a fluctua¬ 
ting body of favourites and employes, 
there was a numerous and in a consider 
able degree fixed class of great land¬ 
holders ; exhibiting far less splendour, 
because individually disposing of a 
much smaller surplus produce, and for 
a long time expending the chief part of 
it in maintaining the body of retainers * 
whom the warlike habits of society, and ' 
the little protection afforded by govern¬ 
ment, rendered indispensable to their 
safety. The greater stability, the fixity 
of personal position, which this state 
of society afforded, in comparison with 
the Asiatic polity to which it economi¬ 
cally corresponded, was one main rea¬ 
son why it was also found more favour¬ 
able to improvement. From this time 
the economical advancement of society 
has not been further interrupted. Se¬ 
curity of person and property grew 
slowly, but steadily; the arts of life 
made constant progress; plunder ceased 
to be the principal source of accumula¬ 
tion ; and feudal Europe ripened into 
commercial and manufacturing Europe. 

In the latter part of the Middle Ages, 
the towns of Italy and Flanders, the 
free cities of Germany, and some towns 
of France and England, contained a 
large and energetic population of arti- 




PRELIMINARY REMARKS. 


12 

sans, and many rich burghers, whose 
wealth had been acquired by manufac¬ 
turing industry, or by trading in the 
produce of such industry. The Com¬ 
mons of England, the Tiers-Etat of 
France, the bourgeoisie of the Conti¬ 
nent generally, are the descendants of 
this class. As these were a saving 
class, while the posterity of the feudal 
aristocracy were a squandering class, 
the former by degrees substituted them¬ 
selves for the latter as the owners of 
a great proportion of the land. This 
natural tendency was in some cases 
retarded by laws contrived for the pur¬ 
pose of detaining the land in the fami¬ 
lies of its existing possessors, in other 
cases accelerated by political revolu¬ 
tions. Gradually, though more slowly, 
the immediate cultivators of the soil, in 
all the more civilized countries, ceased 
to be in a servile or semi-servile state : 
-though the legal position, as well as 
the economical condition attained by 
them, vary extremely in the different 
nations of Europe, and in the great 
communities which have been founded 
beyond the Atlantic by the descendants 
of Europeans. 

The world now contains several ex¬ 
tensive regions, provided with the va¬ 
rious ingredients of wealth in a degree 
■of abundance of which former ages had 
not even the idea. Without compulsory 
labour, an enormous mass of food is 
annually extracted from the soil, and 
maintains, besides the actual producers, 
an equal, sometimes a greater number 
of labourers, occupied in producing 
conveniences and luxuries of innumer¬ 
able kinds, or in transporting them from 
place to place ; also a multitude of per¬ 
sons employed in directing and super¬ 
intending these various labours; and 
over and above all these, a class more 
numerous than in the most luxurious 
ancient societies, of persons whose oc¬ 
cupations are of a kind not directly 
productive, and of persons who have 
no occupation at all. The food thus 
raised, supports a far larger population 
than had ever existed (at least in the 
same regions) on an equal space of 
ground; and supports them with cer¬ 
tainty, exempt from those periodically 


recurring famines so abundant in the 
early history of Europe, and in Oriental 
countries even now not unfrequent. 
Besides this great increase in the quan¬ 
tity of food, it has greatly improved in 
quality and variety; while conveniences 
and luxuries, other than food, are no 
longer limited to a small and opulent 
class, but descend, in great abundance, 
through many widening strata in so¬ 
ciety. The collective resources of one 
of these communities, when it chooses 
to put them forth for any unexpected 
purpose; its ability to maintain fleets 
and armies, to execute public works, 
either useful or ornamental, to perform 
national acts of beneficence like the 
ransom of the West India slaves; to 
found colonies, to have its people 
taught, to do anything in short which 
requires expense, and to do it with no 
sacrifice of the necessaries or even the 
substantial comforts of its inhabitants, 
are such as the world never saw 
before. 

But in all these particulars, charac¬ 
teristic of the modern industrial com¬ 
munities, those communities differ 
widely from one another. Though 
abounding in wealth as compared with 
former ages, they do;*so in very different 
degrees. Even of the countries which 
are justly accounted the richest, some 
have made a more complete use of their 
productive resources, and have obtained, 
relatively to their territorial extent, a 
much larger produce, than others ; nor 
do they differ only in amount of w r ealth, 
but also in the rapidity of its increase. 
The diversities in the distribution of 
wealth are still greater than in the 
production. There are great differences 
in the condition of the poorest class in 
different countries; and in the propor¬ 
tional numbers and opulence of the 
classes which are above the poorest. 
The very nature and designation of the 
classes who originally share among 
them the produce of the soil, vary not 
a little in different places. In some, 
the landowners are a class in them¬ 
selves, almost entirely separate from 
the classes engaged in industry: in 
others, the proprietor of the land is 
almost universally its cultivator, own- 





PRELIMINARY REMARKS. 


Jng the plough, and often himself hold¬ 
ing it. Where the proprietor himself 
does not cultivate, there is sometimes, 
between him and the labourer, an in¬ 
termediate agency, that of the farmer, 
who advances the subsistence of the 
labourers, supplies the instruments of 
production, and receives, after paying 
a rent to the landowner, all the pro¬ 
duce : in other cases, the landlord, 
his paid agents, and the labourers, are 
the only sharers. Manufactures, again, 
are sometimes carried on by scattered 
individuals, who own or hire the tools 
or machinery they require, and employ 
little labour besides that of their own 
family ; in other cases, by large num¬ 
bers working together in one building, 
with expensive and complex machinery 
owned by rich manufacturers. The 
same difference exists in the operations 
of trade. The wholesale operations in¬ 
deed are everywhere carried on by large 
capitals, where such exist; but the 
retail dealings, which collectively oc¬ 
cupy a very great amount of capital, 
are sometimes conducted in small shops, 
chiefly by the personal exertions of the 
dealers themselves, with their families, 
and perhaps an apprentice or two ; and 
sometimes in large establishments, of 
which the funds are supplied by a 
wealthy individual or association, and 
the agency is that of numerous salaried 
shopmen or shopwomen. Resides these 
differences in the economical pheno¬ 
mena presented by different parts of 
what is usually called the civilized 
world, all those earlier states which we 
previously passed in review, have con¬ 
tinued in some part or other of the 
world, down to our own time. Hunt¬ 
ing communities still exist in America, 
nomadic in Arabia and the steppes of 
Northern Asia; Oriental society is in 
essentials what it has always been ; the 
great empire of Russia is even now, in 
many respects, the scarcely modified 
image of feudal Europe. Every one of 
the great types of human society, down 
to that of the Esquimaux or Patago¬ 
nians, is still extant. 

These remarkable differences in the 
state of different portions of the human 
race, with regard to the production and 


13- 

distribution of wealth, must, like all 
other phenomena, depend on causes. 
And it is not a sufficient explanation 
to ascribe them exclusively to the de¬ 
grees of knowledge, possessed at dif¬ 
ferent times and places, of the laws of 
nature and the physical arts of life. 
Many other causes co-operate; and’ 
that very progress and unequal dis¬ 
tribution of physical knowledge, are 
partly the effects, as well as partly the 
causes, of the state of the production 
and distribution of wealth. 

In so far as the economical condition 
of nations turns upon the state of phy¬ 
sical knowledge, it is a subject for the 
physical sciences, and the arts founded 
on them. But in so far as the causes 
are moral or psychological, dependent 
on institutions and social relations, or 
on the principles of human nature, 
their investigation belongs not to phy¬ 
sical, but to moral and social science, 
and is the object of what is called Po¬ 
litical Economy. 

The production of wealth; the ex¬ 
traction of the instruments of human 
subsistence and enjoyment from the 
materials of the globe, is evidently not 
an arbitrary thing. It has its neces¬ 
sary conditions. Of these, some are 
physical, depending on the properties 
of matter, and on the amount of 
knowledge of those properties possessed 
at the particular place and time. These 
Political Economy does not investigate, 
but assumes; referring for the grounds, 
to physical science or common expe¬ 
rience. Combining with these facts 
of outward nature other truths relating 
to human nature, it attempts to trace 
the secondary or derivative laws, by 
which the production of wealth is de¬ 
termined; in which must lie the ex¬ 
planation of the diversities of riches 
and poverty in the present and past, 
and the ground of whatever in¬ 
crease in wealth is reserved for the 
future. 

Unlike the laws of Production, those 
of Distribution are partly of human 
institution: since the manner in which 
wealth is distributed in any given so¬ 
ciety, depends on the statutes or usages, 
therein obtaining. But though govern- 



PRELIMINARY REMARKS. 


14 

ments or nations have the power of de¬ 
ciding what institutions shall exist, 
they cannot arbitrarily determine how 
those institutions shall work. The con¬ 
ditions on which the power they possess 
over the distribution of wealth is depen¬ 
dent, and the manner in which the dis¬ 
tribution is affected by the various modes 


of conduct which society may think fit to 
adopt, are as much a subject for scien¬ 
tific inquiry as any of the physical laws 
of nature. 

The laws of Production and Distri¬ 
bution, and some of the practical con¬ 
sequences deducible from them, are the 
subject of the following treatise. 



BOOK I 


PRODUCTION. 

CHAPTER I. 

OF THE REQUISITES OF PRODUCTION. 


§ 1. The requisites of production are 
two: labour, and appropriate natural 
objects. 

Labour is either bodily or mental; 
or, to express the distinction more com¬ 
prehensively, either muscular or nerv¬ 
ous ; and it is necessary to include in 
the idea, not solely the exertion itself, 
but all feelings of a disagreeable kind, 
all bodily inconvenience or mental an¬ 
noyance, connected with the employ¬ 
ment of one’s thoughts, or muscles, or 
both, in a particular occupation. Of 
the other requisite—appropriate na¬ 
tural objects—it is to be remarked, that 
some objects exist or grow up sponta¬ 
neously, of a kind suited to the supply 
of human wants. There are caves and 
hollow trees capable of affording shel¬ 
ter ; fruit, roots, wild honey, and other 
natural products, on which human life 
can be supported; but even here a con¬ 
siderable quantity of labour is generally 
required, not for the purpose of creating, 
but of finding and appropriating them. 
In all but these few and (except in the 
very commencement of human society) 
unimportant cases, the objects supplied 
by nature are only instrumental to hu¬ 
man wants, after having undergone 
some degree of transformation by hu¬ 
man exertion. Even the wild animals 
of the forest and of the sea, from which 
the hunting and fishing tribes derive 
their sustenance—though the labour of 
which they are the subject is chiefly 
that required for appropriating them— 
must yet, before they are used as food, 
be killed, divided into fragments, and 
subjected in almost all cases to some 


culinary process, which are operations 
requiring a certain degree of human 
labour. The amount of transformation 
which natural substances undergo be¬ 
fore being brought into the shape in 
which they are directly applied to hu¬ 
man use, varies from this or a still less 
degree of alteration in the nature and 
appearance of the object, to a change 
so total that no trace is perceptible of 
the original shape and structure. There 
is little resemblance between a piece of 
a mineral substance found in the earth, 
and a plough, an axe, or a saw. There 
is less resemblance between porcelain 
and the decomposing granite of which 
it is made, or between sand mixed with 
sea-weed, and glass. The difference is 
greater still between the fleece of a 
sheep, or a handful of cotton seeds, and 
a web of muslin or broad cloth; and 
the sheep and seeds themselves are not 
spontaneous growths, but results of pre¬ 
vious labour and care. In these se¬ 
veral cases the ultimate product is so 
extremely dissimilar to the substance 
supplied by nature, that in the custom 
of language nature is represented as 
only furnishing materials. 

Nature, however, does more than 
supply materials; she also supplies 
powers. The matter of the globe is 
not an inert recipient of forms and pro¬ 
perties impressed by human hands; it 
has active energies by which it co-ope¬ 
rates with, and may even be used as a 
substitute for, labour. In the early 
ages people converted their corn into 
flour by pounding it between two stones; 
they next hit on a contrivance which 






BOOK I. CHAPTER I. § 2. 


16 

enabled them, by turning a handle, to 
make one of the stones revolve upon 
the other; and this process, a little im¬ 
proved, is still the common practice of 
the East. The muscular exertion, 
however, which it required, was very 
severe and exhausting, insomuch that 
it was often selected as a punishment 
for slaves who had offended their 
masters. When the time came at 
which the labour and sufferings of 
slaves were thought worth economizing, 
the greater part of this bodily exertion 
was rendered unnecessary, by contriv¬ 
ing that the upper stone should be 
made to revolve upon the lower, not by 
human strength, but by the force of 
the wind or of falling water. In this 
case, natural agents, the wind or the 
gravitation of the water, are made to 
do a portion of the work previously 
done by labour. 

§ 2. Cases like this, in which a cer¬ 
tain amount of labour has been dis¬ 
pensed with, its work being devolved 
upon some natural agent, are apt to 
suggest an erroneous notion of the 
comparative functions of labour and 
natural powers ; as if the co-operation 
of those powers with human industry 
were limited to the cases in which they 
are made to perform what would other¬ 
wise be done by labour; as if, in the 
case of things made (as the phrase is) 
by hand, nature only furnished passive 
materials. This is an illusion. The 
powers of nature are as actively opera¬ 
tive in the one case as in the other. A 
workman takes a stalk of the flax or 
hemp plant, splits it into separate 
fibres, twines together several of these 
fibres with his fingers, aided by a simple 
instrument called a spindle; having 
thus formed a thread, he lays many 
such threads side by side, and places 
other similar threads directly across 
them, so that each passes alternately 
over and under those which are at right 
apsdes to it; this part of the process 
being facilitated by an instrument 
called a shuttle. He has now produced 
a web of cloth, either linen or sack¬ 
cloth, according to the material. He 
is said to have done this by hand, 
no natural force being supposed to 
have acted in concert with him. 


But by what force is each step 
of this operation rendered possi¬ 
ble, and the web, when produced, 
held together? By the tenacity, or 
force of cohesion of the fibres: which 
is one of the forces in nature, and which 
we can measure exactly against other 
mechanical forces, and ascertain how 
much of any of them it suffices to neu¬ 
tralize or counterbalance. 

If we examine any other case of what 
is called the action of man upon na¬ 
ture, we shall find in like manner that 
the powers of nature, or in other words 
the properties of matter, do all the work, 
when once objects are put into the right 
position. This one operation, of putting 
things into fit places for being acted upon 
by their own internal forces, and by 
those residing in other natural objects, 
is all that man does, or can do, with mat¬ 
ter. He only moves one thing to or from 
another. He moves a seed into the 
ground; and the natural forces of vege¬ 
tation produce in succession a root, a 
stem, leaves, flowers, and fruit. He 
moves an axe through a tree, and it 
falls by the natural force of gravitation 
he moves a saw through it, in a parti¬ 
cular manner, and the physical proper¬ 
ties by which a softer substance gives 
way before a harder, make it separate 
into planks, which he arranges in cer¬ 
tain positions, with nails driven through 
them, or adhesive matter between them, 
and produces a table, or a house. He 
moves a spark to fuel, and it ignites, 
and by the force generated in combus¬ 
tion it cooks the food, melts or softens 
the iron, converts into beer or sugar 
the malt or cane-juice, which he has 
previously moved to the spot. He has 
no other means of acting on matter 
than by moving it. Motion, and re¬ 
sistance to motion, are the only things 
which his muscles are constructed for. 
By muscular contraction he can create 
a pressure on an outward object, which, 
if sufficiently powerful, will set it in 
motion, or if it be already moving, will 
check or modify or altogether arrest its 
motion, and he can do no more. But 
this is enough to have given all the 
command which mankind have acquired 
over natural forces immeasurably more 
powerful than themselves; a command 






REQUISITES OF PRODUCTION. 17 


which, great as it is already, is without 
doubt destined to become indefinitely 
greater. He exerts this power either 
by availing himself of natural forces in 
existence, or by arranging objects in 
those mixtures and combinations by 
which natural forces are generated ; as 
when by putting a lighted match to 
fuel, and vmter into a boiler over it, he 
generates the expansive force of steam, 
a power which has been made so largely 
available for the attainment of human 
purposes.* 

Labour, then, in the physical world, 
is always and solely employed in put¬ 
ting objects in motion ; the properties 
of matter, the laws of nature, do the 
rest. The skill and ingenuity of hu¬ 
man beings are chiefly exercised in 
discovering movements, practicable by 
their powers, and capable of bringing 
about the effects which they desire. 
But, while movement is the only effect 
which man can immediately and 
directly produce by his muscles, it is 
not necessary that he should produce 
directly by them all the movements 
which he requires. The first and most 
obvious substitute is the muscular ac¬ 
tion of cattle: by degrees the powers 
of inanimate nature are made to aid in 
this too, as by making the wind, or 
•water, things already in motion, com¬ 
municate a part of their motion to the 
wheels, which before that invention 
were made to revolve by muscular 
force. This service is extorted from 
the powers of wind and water by a set 
of actions, consisting like the former in 
moving certain objects into certain 
positions in which they constitute 
what is termed a machine ; but the 
muscular action necessary for this is 
not constantly renewed, but performed 
once for all, and there is on the whole 
a great economy of labour. 

§ 3. Some writers have raised the 
question, whether nature gives more 
assistance to labour in one kind of 
industry or in another ; and have said 

* This essential and primary law of man’s 
power over nature was, I believe, first illus¬ 
trated and made prominent as a fundamental 
principle of Political Economy, in the first 
chaptet of Mr. Mill’s Elements. 

P.E. 


that in some occupations labour does 
most, in others nature most. In this, 
however, there seems much confusion 
of ideas. The part which nature has 
in any work of man, is indefinite and 
incommensurable. It is impossible to 
decide that in any one thing nature 
does more than in any other. One 
cannot even say that labour does less. 
Less labour may bo required; but if 
that which is required is absolutely 
indispensable, the result is just as 
much the product of labour, as of 
nature. When two conditions are 
equally necessary for producing the 
effect at all, it is unmeaning to say 
that so much of it is produced by one 
and so much by the other; it is like 
attempting to decide which half of a 
pair of scissors has most to do in the 
act of cutting ; or which of the factors, 
five and six, contributes most to the 
production of thirty. The form which 
this conceit usually assumes, is that of 
supposing that nature lends more assist¬ 
ance to human endeavours in agricul¬ 
ture, than in manufactures. This 
notion, held by the French Economistes, 
and from which Adam Smith was not 
free, arose from a misconception of the 
nature of rent. The rent of land being 
a price paid for a natural agency, and 
no such price being paid in manufac¬ 
tures, these writers imagined that since 
a price was paid, it was because there 
was a greater amount of service to be 
paid for : whereas a better considera¬ 
tion of the subject would have shown 
that the reason why the use of land 
bears a price is simply the limitation 
of its quantity, and that if air, heat, 
electricity, chemical agencies, and the 
other powers of nature employed by 
manufacturers, were sparingly supplied, 
and could, like land, be engrossed and 
appropriated, a rent could be exacted 
for them also. 

§ 4. This leads to a distinction 
which we shall find to be of primary 
importance. Of natural powers, some 
are unlimited, others limited in quan¬ 
tity. By an unlimited quantity is of 
course not meant literally, but prac¬ 
tically unlimited: a quantity beyond 
the use which can in any, or at least 

C 



BOOK I. CHAPTER I. § 4. 


in present circumstances, be made of 
it. Land is, in some newly settled 
countries, practically unlimited in 
quantity: there is more than can be 
used by the existing population of the 
country, or by any accession likely to 
be made to it for generations to come. 
But even there, land favourably situa¬ 
ted with regard to markets or means 
of carriage, is generally limited in 
quantity : there is not so much of it as 
persons would gladly occupy and culti¬ 
vate, or otherwise turn to use. In all 
old countries, land capable of cultiva¬ 
tion, land at least of any tolerable 
fertility, must be ranked among agents 
limited in quantity. Water, for ordi¬ 
nary purposes, on the banks of rivers 
or lakes, may be regarded as of un¬ 
limited abundance ; but if required for 
irrigation, it may even there be in¬ 
sufficient to supply all wants, while in 
places which depend for their consump¬ 
tion on cisterns or tanks, or on wells 
which are not copious, or are liable to 
fail, water takes its place among things 
the quantity of which is most strictly 
limited. Where water itself is plenti¬ 
ful, yet water-power, i.e. a fall of water 
applicable by its mechanical force to 
the service of industry, may be ex¬ 
ceedingly limited, compared with the 
use which would be made of it if it 
were more abundant. Coal, metallic 
ores, and other useful substances found 
in the earth, are still more limited than 
land. They are not only strictly local, but 
exhaustible ; though, at a given place 
and time, they may exist in much 
greater abundance than would be ap¬ 
plied to present use even if they could 
be obtained gratis. Fisheries, in the 
sea, are in most cases a gift of nature 
practically unlimited in amount; but 
the Arctic whale fisheries have long 
been insufficient for the demand which 
exists even at the very considerable 
price necessary to defray the cost of 
appropriation: and the immense ex¬ 
tension which the Southern fisheries 
have in consequence assumed, is tend¬ 


ing to exhaust them likewise. River 
fisheries are a natural resource of a 
very limited character, and would be 
rapidly exhausted, if allowed to be used 
by every one without restraint. Air, 
even that state of it which we term 
wind, may, in most situations, be ob¬ 
tained in a quantity sufficient for every 
possible use; and so likewise, on the 
sea coast or on large rivers, may water 
carriage: though the wharfage or 
harbour-room applicable to the service 
of that mode of transport is in many 
situations far short of what would be 
used if easily attainable. 

It will be seen hereafter how much 
of the economy of society depends on 
the limited quantity in which some of 
the most important natural agents 
exist, and more particularly, land. For 
the present I shall only remark that so 
long as the quantity of a natural agent 
is practically unlimited, it cannot, un¬ 
less susceptible of artificial monopoly, 
bear any value in the market, since no 
one will give anything for what can be 
obtained gratis. But as soon as a 
limitation becomes practically opera¬ 
tive ; as soon as there is not so much 
of the thing to be had, as would be 
appropriated and u£ed if it could be 
obtained for asking; the ownership or 
use of the natural agent acquires an 
exchangeable value. When more 
water-power is wanted in a particular 
district, than there are falls of water to 
supply it, persons will give an equiva¬ 
lent for the use of a fall of water. 
When there is more land wanted for 
cultivation than a place possesses, or 
than it possesses of a certain quality 
and certain advantages of situation, 
land of that quality and situation may 
be sold for a price, or let for an annual 
rent. This subject will hereafter be 
discussed at length; but it is often 
useful to anticipate, by a brief sugges¬ 
tion, principles and deductions which 
we have not yet reached the place for 
exhibiting and illustrating fully. 



LABOUR AS AN AGENT OF PRODUCTION. 


19 


CHAPTER H. 

OF LABOUR AS AN AGENT OF PRODUCTION. 


§ 1. The labour which terminates in 
the production of an article fitted for 
some human use, is either employed 
directly about the thing, or in previous 
operations destined to facilitate, perhaps 
essential to the possibility of, the sub¬ 
sequent ones. In making bread, for 
example, the labour employed about 
the thing itself is that of the baker; 
but the labour of the miller, though 
employed directly in the production 
not of bread but of flour, is equally part 
of the aggregate sum of labour by 
which the bread is produced; as is 
also the labour of the sower, and of the 
reaper. Some may think that all these 
persons ought to be considered as em¬ 
ploying their labour directly about the 
thing; the corn, the flour, and the 
bread being one substance in three 
different states. Without disputing 
about this question of mere language, 
there is still the ploughman who pre¬ 
pared the ground for the seed, and 
whose labour never came in contact 
with the substance in any of its states ; 
and the plough-maker, whose share in 
the result was still more remote. All 
these persons ultimately derive the re¬ 
muneration of their labour from the 
bread, or its price: the plough-maker 
as much as the rest; for since ploughs 
are of no use except for tilling the soil, 
no one would make or use ploughs for 
any other reason than because the in¬ 
creased returns, thereby obtained from 
the ground, afforded a source from 
which an adequate equivalent could be 
assigned for the labour of the plough- 
maker. If the produce is to be used 
or consumed in the form of bread, it is 
from the bread that this equivalent 
must come. The bread must suffice 
to remunerate all these labourers, and 
several others ; such as the carpenters 
and bricklayers who erected the farm- 
buildings ; the hedgers and ditchers 
who made the fences necessary for the 
protection of the crop; the miners and 


smelters who extracted or prepared 
the iron of which the plough and 
other implements were made. These, 
however, and the plough-maker, do not 
depend for their remuneration upon 
the bread made from the produce of 
a single harvest, but upon that made 
from the produce of all the har¬ 
vests which are successively gathered 
until the plough, or the buildings and 
fences, are worn out. We must add 
yet another kind of labour; that of 
transporting the produce from the place 
of its production to the place of its 
destined use : the labour of carrying 
the corn to market, and from market 
to the miller’s, the flour from the 
miller’s to the baker’s, and the bread 
from the baker’s to the place of its final 
consumption. This labour is some¬ 
times very considerable : flour is trans¬ 
ported to England from beyond the 
Atlantic, corn from the heart of Russia; 
and in addition to the labourers imme¬ 
diately employed, the waggoners and 
sailors, there are also costly instru¬ 
ments, such as ships, in the construc¬ 
tion of which much labour has been 
expended: that labour, however, not de¬ 
pending for its whole remuneration upon 
the bread, but for a part only; ships 
being usually, during the course of their 
existence, employed in the transport of 
many different kinds of commodities. 

To estimate, therefore, the labour of 
wdiich any given commodity is the re¬ 
sult, is far from a simple operation. 
The items in the calculation are very 
numerous—as it may seem to some 
persons, infinitely so ; for if, as a part 
of the labour employed in making 
bread, we count the labour of the 
blacksmith who made the plough, why 
not also (it may be asked) the labour 
of making the tools used by the black¬ 
smith, and the tools used in making those 
tools, and so back to the origin of 
things ? But after mounting one or two 
steps in this ascending scale, we come 




20 BOOK I. CHAPTER II. § 2. 


into a region of fractions too minute 
for calculation. Suppose, for instance, 
tliat the same plough will last, before 
being worn out, a dozen years. Only 
one-twelfth of the labour of making the 
plough must be placed to the account 
of each year’s harvest. A twelfth part 
of the labour of making a plough is an 
appreciable quantity. But the same set 
of tools, perhaps, suffice to the plough- 
maker for forging a hundred ploughs, 
which serve during the twelve years of 
their existence to prepare the soil of 
as many different farms. A twelve- 
hundredth part of the labour of making 
his tools, is as much, therefore, as has 
been expended in procuring one year’s 
harvest of a single farm : and when 
this fraction comes to be further appor¬ 
tioned among the various sacks of corn 
and loaves of bread, it is seen at once 
that such quantities are not worth 
taking into the account for any prac¬ 
tical purpose connected with the com¬ 
modity. It is true that if the tool- 
maker had not laboured, the corn and 
bread never would have been produced ; 
but they will not be sold a tenth part 
of a farthing dearer in consideration of 
his labour. 

§ 2. Another of the modes in which 
labour is indirectly or remotely instru¬ 
mental to the production of a thing, 
requires particular notice : namely, 
when it is employed in producing sub¬ 
sistence, to maintain the labourers 
while they are engaged in the produc¬ 
tion. This previous employment of 
labour is an indispensable condition to 
every productive operation, on any 
other than the very smallest scale. 
Except the labour of the hunter and 
fisher, there is scarcely any kind of 
labour to which the returns are imme¬ 
diate. Productive operations require 
to be continued a certain time, before 
their limits are obtained. Unless the 
labourer, before commencing his work, 
possesses a store of food, or can obtain 
access to the stores of some one else, 
in sufficient quantity to maintain him 
until the production is completed, he 
can undertake no labour but such as 
can be carried on at odd intervals, 
concurrently with the pursuit of his 


subsistence. He cannot obtain food 
itself in any abundance; for every 
mode of so obtaining it, requires that 
there be already food in store. Agri¬ 
culture only brings forth food after the 
lapse of months; and though the 
labours of the agriculturist are not 
necessarily continuous during the whole 
period, they must occupy a considera¬ 
ble part of it. Not only is agriculture 
impossible without food produced in 
advance, but there must be a very 
great quantity in advance to enable 
any considerable community to sup¬ 
port itself wholly by agriculture. A 
country like England or France is only 
able to carry on the agriculture of the 
present year, because that of past years 
lias provided, in those countries or 
somewhere else, sufficient food to sup¬ 
port their agricultural population until 
the next harvest. They are only 
enabled to produce so many other 
things besides food, because the food 
which was in store at the close of the 
last harvest suffices to maintain not 
only the agricultural labourers, but a 
large industrious population besides. 

The labour employed in producing 
this stock of subsistence, forms a great 
and important part of the past labour 
which has been necessary to enable 
present labour to be carried on. But 
there is a difference, requiring parti¬ 
cular notice, between this and the other 
kinds of previous or preparatory labour. 
The miller, the reaper, the ploughman, 
the plough-maker, the waggoner and 
waggon-maker, even the sailor and 
ship-builder when employed, derive 
their remuneration from the ultimate 
product—the bread made from the com 
on which they have severally operated, 
or supplied the instruments for ope¬ 
rating. The labour that produced the 
food which fed all these labourers, is as 
necessary to the ultimate result, the 
bread of the present harvest, as any of 
those other portions of labour; but is 
not, like them, remunerated from it. 
That previous labour has received its 
remuneration from the previous food. 
In order to raise any product, there are 
needed labour, tools, and materials, and 
food to feed the labourers. But the 
tools and materials are of no use except 






LABOUR AS AN AGENT OF PRODUCTION. 


for obtaining the product, or at least 
are to be applied to no other use, and 
the labour of their construction can be 
remunerated only from the product 
when obtained. The food, on the con¬ 
trary, is intrinsically useful, and is ap- 
lied to the direct use of feeding human 
eings. The labour expended in pro¬ 
ducing the food, and recompensed by 
it, needs not be remunerated over again 
from the produce of the subsequent 
labour which it has fed. If we suppose 
that the same body of labourers carried 
on a manufacture, and grew food to 
sustain themselves while doing it, they 
have had for their trouble the food and 
the manufactured article; but if they 
also grew the material and made the 
tools, they have had nothing for that 
trouble but the manufactured article 
alone. 

The claim to remuneration founded 
on the possession of food, available for 
the maintenance of labourers, is of an¬ 
other kind; remuneration for abstinence, 
not for labour. If a person has a store 
of food, he has it in his power to con¬ 
sume it himself in idleness, or in feed¬ 
ing others to attend on him, or to fight 
for him, or to 6ing or dance for him. 
If, instead of these things, he gives it 
to productive labourers to support them 
during their work, he can, and natur¬ 
ally will, claim a remuneration from the 
produce. He will not be content with 
simple repayment; if he receives merely 
that, he is only in the same situation 
as at first, and has derived no advan¬ 
tage from delaying to apply his savings 
to his own benefit or pleasure. He will 
look for some equivalent for this for¬ 
bearance : he will expect his advance 
of food to come back to him with an 
increase, called in the language of busi¬ 
ness, a profit; and the hope of this 
profit will generally have been a part of 
the inducement which made him accu¬ 
mulate a stock, by economizing in his 
own consumption ; or, at any rate, 
which made him forego the application 
of it, when accumulated, to his personal 
ease or satisfaction. The food also 
which maintained other workmen while 
producing the tools or materials, must 
have been provided in advance by some 
one, and he, too, must have his profit 


21 

from the ultimate product; but there 
is this difference, that here the ultimate 
product has to supply not only the 
)rofit, but also the remuneration of the 
abour. The tool-maker (sav, for in¬ 
stance, the plough-maker) does not in¬ 
deed usually wait for his payment until 
the harvest is reaped; the farmer ad¬ 
vances it to him, and steps into his 
place by becoming the owner of the 
plough. Nevertheless, it is from the 
harvest that the payment is to come ; 
since the farmer would not undertake 
this outlay unless he expected that the 
harvest would repay him, and with a 
profit too on this fresh advance ; that 
is, unless the harvest would yield, be¬ 
sides the remuneration of the farm 
labourers (and a profit for advancing 
it), a sufficient residue to remunerato 
the plough-maker’s labourers, give the 
plough-maker a profit, and a profit to 
the farmer on both. 

§ 3. From these considerations it ap¬ 
pears, that in an enumeration and clas¬ 
sification of the kinds of industry which 
are intended for the indirect or remote 
furtherance of other productive labour, 
we need not include the labour of pro¬ 
ducing subsistence or other necessaries 
of life to be consumed by productive 
labourers ; for the main end and pur¬ 
pose of this labour is the subsistence 
itself; and though the possession of a 
store of it enables other work to be done, 
this is but an incidental consequence. 
The remaining modes in which labour is 
indirectly instrumental to production, 
may be arranged under five heads. 

First: Labour employed in producing 
materials, on which industry is to be 
afterwards employed. This is, in many 
cases, a labour of mere appropriation ; 
extractive industry, as it has been aptly 
named by M. Dunoyer. The labour of 
the miner, for example, consists of ope¬ 
rations for digging out of the earth 
substances convertible by industry into 
various articles fitted for human use. 
Extractive industry, however, is not 
confined to the extraction of materials. 
Coal, for instance, is employed, not 
only in the processes of industry, but in 
directly warming human beings. When 
so used, it is not a material of produc- 



22 BOOK I. CHAPTER II. § 4. 


tion, but is itself the ultimate product. 
So, also, in the case of a mine of pre¬ 
cious stones. These are to some small 
extent employed in the productive arts, 
as diamonds by the glass-cutter, emery 
and corundum for polishing, but their 
principal destination, that of ornament, 
is a direct use ; though they commonly 
require, before being so used, some pro¬ 
cess of manufacture, which may per¬ 
haps warrant our regarding them as 
materials. Metallic ores of all sorts are 
materials merely. 

Under the head, production of mate¬ 
rials, we must include the industry of 
the wood-cutter, when employed in 
cutting and preparing timber for build¬ 
ing, or wood for the purposes of the 
carpenter’s or any other art. In the 
forests of America, Norway, Germany, 
the Pyrenees and Alps, this sort of 
labour is largely employed on trees of 
spontaneous growth. In other cases, 
we must add to the labour of the wood¬ 
cutter that of the planter and culti¬ 
vator. 

Under the same head are also com¬ 
prised the labours of the agriculturists 
in growing flax, hemp, cotton, feeding 
silk-worms, raising food for cattle, pro¬ 
ducing bark, dye-stuffs, some oleaginous 
plants, and many other things only 
useful because required in other de¬ 
partments of industry. So, too, the 
labour of the hunter, as far as his 
object is furs or feathers ; of the shep¬ 
herd and the cattle-breeder, in respect 
of wool, hides, horn, bristles, horse-hair, 
and the like. The things used as 
materials in some process or other of 
manufacture are of a most miscel¬ 
laneous character,- drawn from almost 
every quarter of the animal, vegetable, 
and mineral kingdoms. And besides 
this, the finished products of many 
branches of industry are the materials 
of others. The thread produced by 
the spinner is applied to hardly any 
use except as material for the w r eaver. 
Even the product of the loom is chiefly 
used as material for the fabricators of 
articles of dress or furniture, or of 
further instruments of productive in¬ 
dustry, as in the case of the sailmaker. 
The currier and tanner find their 
whole occupation in converting raw 


material into what may be termed 
prepared material. In strictness of 
speech, almost all food, as it comes 
from the hands of the agriculturist, is 
nothing more than material for the 
occupation of the baker or the cook. 

§ 4. The second kind of indirect 
labour is that employed in making 
tools or implements for the assistance 
of labour. I use these terms in their 
most comprehensive sense, embracing 
all permanent instruments or helps to 
production, from a flint and steel for 
striking a light, to a steam ship, or 
the most complex apparatus of manu¬ 
facturing machinery. There may be 
some hesitation whei'e to draw the line 
between implements and materials; 
and some things used in production 
(such as fuel) would scarcely in com¬ 
mon language be called by either name, 
popular phraseology being shaped out 
by a different class of necessities from 
those of scientific exposition. To 
avoid a multiplication of classes and 
denominations answering to distinc¬ 
tions of no scientific importance, poli¬ 
tical economists generally include all 
things which are used as immediate 
means of production (the means which 
are not immediate will be considered 
presently) either in the class of imple¬ 
ments or in that of materials. Per¬ 
haps the line is most usually and most 
conveniently drawn, by considering as 
a material every instrument of produc¬ 
tion which can only be used once, being 
destroyed (at least as an instrument 
for the purpose in hand) by a single 
employment. Thus fuel, once burnt, 
cannot be again used as fuel; what 
can be so used is only any portion 
which has remained unburnt the first 
time. And not only it cannot be used 
without being consumed, but it is only 
useful by being consumed ; for if no 
part of the fuel were destroyed, no 
heat would be generated. A fleece, 
again, is destroyed as a fleece by being 
spun into thread ; and the thread can¬ 
not be used as thread when woven 
into cloth. But an axe is not de¬ 
stroyed as an axe by cutting down a 
tree : it may be used afterwards to 
cut down a hundred or a thousand 



LABOUR AS AN AGENT OF PRODUCTION. 


more; and though deteriorated in 
some small degree by each use, it does 
not do its work by being deteriorated, 
as the coal and the fleece do theirs by 
being destroyed ; on the contrary, it is 
the better instrument the better it re¬ 
sists deterioration. There are some 
things, rightly classed as materials, 
which may be used as such a second 
and a third time, but not while the 
product to which they at first, contri¬ 
buted remains in existence. The iron 
which formed a tank or a set of pipes 
may be melted to form a plough or a 
steam-engine ; the stones with which 
a house was built may be used after it 
is pulled down, to build another. But 
this cannot be done while the original 
product subsists; their function as 
materials is suspended, until the ex¬ 
haustion of the first use. Not so with 
the things classed as implements; they 
may be used repeatedly for fresh work, 
until the time, sometimes very distant, 
at which they are worn out, while the 
work already done by them may sub¬ 
sist unimpaired, and when it perishes, 
does so by its own laws, or by casual¬ 
ties of its own.* 

The only practical difference of much 
importance arising from the distinction 
between materials and implements, is 
one which has attracted our attention 
in another case. Since materials are 
destroyed as such by being once used, 
the whole of the labour required for 
their production, as well as the absti¬ 
nence of the person who supplied the 
means of carrying it on, must be 
remunerated from the fruits of that 

* The able and friendly reviewer of this 
treatise in the Edinburgh Review (October 
184S) conceives the distinction between ma¬ 
terials and implements rather differently: 
proposing to consider as materials “ all the 
things which, after having undergone the 
change implied in production, are them¬ 
selves matter of exchange,” and as imple¬ 
ments (or instruments) “ the things which 
are employed in producing that change, but 
do not themselves become part of the ex¬ 
changeable result.” According to these 
definitions, the fuel consumed in a manufac¬ 
tory would be considered, not as a material, 
but as an instrument. This use of the terms 
accords better than that proposed in the 
text, with the primitive physical meaning of 
the word “materialbut the distinction on 
which it is grounded is one almost irrelevant 
to political economy. 


23 

single use. Implements, on the con 
trary, being susceptible of repeated 
employment, the whole of the products 
which they are instrumental in bring¬ 
ing into existence are a fund which 
can be drawn upon to remunerate the 
labour of their construction, and the 
abstinence of those by whose accumu¬ 
lations that labour was supported. It 
is enough if each product contributes 
a fraction, commonly an insignificant 
one, towards the remuneration of that 
labour and abstinence, or towards in¬ 
demnifying the immediate producer for 
advancing that remuneration to the 
person who produced the tools. 

§ 5. Thirdly: Besides materials 
for industry to employ itself on, and 
implements to aid it, provision must be 
made to prevent its operations from 
being disturbed and its products in¬ 
jured, either by the destroying agencies 
of nature, or by the violence or rapa¬ 
city of men. This gives rise to an¬ 
other mode in which labour not 
employed directly about the product 
itself, is instrumental to its production; 
namely, when employed for the protec¬ 
tion of industry. Such is the object of 
all buildings for industrial purposes; 
all manufactories, warehouses, docks,, 
granaries, barns, farm-buildings de¬ 
voted to cattle, or to the operations of 
agricultural labour. I exclude those 
in which the labourers live, or which 
are destined for their personal accom¬ 
modation : these, like their food, supply 
actual wants, and must be counted in 
the remuneration of their labour. 
There are many modes in which labour 
is still more directly applied to the 
protection of productive operations. 
The herdsman has little other occupa¬ 
tion than to protect the cattle from 
harm : the positive agencies concerned 
in the realization of the product, go on 
nearly of themselves. I have already 
mentioned the labour of the hedger and 
ditcher, of the builder of walls or dykes. 
To these must be added that of the 
soldier, the policeman, and the judge. 
These functionaries are not indeed 
employed exclusively in the protection 
of industry, nor does their payment 
constitute, to the individual producer, 



24 BOOK I. CHAPTEE II. § 6. 


a part of tlie expenses of production. 
But they are paid from the taxes, 
which are derived from the produce of 
industry; and in any tolerably go¬ 
verned country they render to its 
operations a sendee far more than 
equivalent to the cost. To society at 
large they are therefore part of the 
expenses of production: and if the 
returns to production were not suf¬ 
ficient to maintain these labourers in 
addition to all the others required, 
production, at least in that form and 
manner, could not take place. Be¬ 
sides, if the protection which the 
government affords to the operations of 
industry were not afforded, the pro¬ 
ducers would he under a necessity of 
either withdrawing a large share of 
their time and labour from production, 
to employ it in defence, or of engaging 
armed men to defend them ; all which 
labour, in that case, must he directly 
remunerated from the produce; and 
things which could not pay for this 
additional labour, would not be pro¬ 
duced. Under the present arrange¬ 
ments, the product pays its quota to- 
wards the same protection, and not¬ 
withstanding the waste and prodigality 
incident to government expenditure, 
obtains it of better quality at a much 
smaller cost. 

§ 6. Fourthly: There is a very 
great amount of labour employed, not 
in bringing the product into existence, 
but in rendering it, when in existence, 
accessible to those for whose use it is 
intended. Many important classes of 
labourers find their sole employment in 
some function of this kind. There is 
first the whole class of carriers, by 
land or water : muleteers, waggoners, 
bargemen, sailors, wharfmen, coal- 
neavers, porters, railway establish¬ 
ments, and the like. Next, there are 
the constructors of all the implements 
of transport; ships, barges, carts, loco¬ 
motives, &c., to which must be added 
roads, canals, and railways. Eoads 
are sometimes made by the govern¬ 
ment, and opened gx-atuitously to the 
public ; but the labour of making them 
is not the less paid for from the pro¬ 
duce. Each producer, in paying his 


quota of the taxes levied generally for 
the construction of roads, pays for the 
use of those which conduce to his con¬ 
venience ; and if made with any toler¬ 
able judgment, they increase the re¬ 
turns to his industry by far more than 
an equivalent amount. 

Another numerous class of labourers 
employed in rendering the things pro¬ 
duced accessible to their intended con¬ 
sumers, is the class of dealers and 
traders, or, as they may be termed, 
distributors. There would be a great 
waste of time and trouble, and an in¬ 
convenience often amounting to im¬ 
practicability, if consumers could only 
obtain the articles they want by treat¬ 
ing directly with the producers. Both 
producers and consumers are too much 
scattered, and the latter often at too 
great a distance from the'former. To 
diminish this loss of time and labour, 
the contrivance of fairs and markets 
was early had recourse to, where con¬ 
sumers and producers might periodi¬ 
cally meet, without any intermediate 
agency: and this plan answers toler¬ 
ably well for many articles, especially 
agricultural produce, agriculturists 
having at some seasons a certain quan¬ 
tity of spare time on their hands. But 
even in this case, attendance is often 
very troublesome and inconvenient to 
buyers who have other occupations, 
and do not live in the immediate 
vicinity; while, for all articles the pro¬ 
duction of which requires continuous 
attention from the producers, these 
periodical markets must be held at 
such considerable intervals, and the- 
wants of the consumers must either be 
provided for so long beforehand, or 
must remain so long unsupplied, that 
even before the resources of society 
admitted of the establishment of shops, 
the supply of these wants fell univer¬ 
sally into the hands of itinerant 
dealers ; the pedlar, who might appear 
once a month, being preferred to the 
fair, which only returned once or twice 
a year. In country districts, remote 
from towns or large villages, the in¬ 
dustry of the pedlar is not yet wholly 
superseded. But a dealer who has a 
fixed abode and fixed customers is so 
much more to be depended on, that, 




LABOUR AS AN AGENT OF BRODUCTION. 


consumers prefer resorting to him if lie 
is conveniently accessible ; and dealers 
therefore find their advantage in esta¬ 
blishing themselves in every locality 
where there are sufficient consumers 
near at hand to afford them a remune¬ 
ration. 

In many cases the producers and 
dealers are the same persons, at least 
as to the ownership of the funds and 
the control of the operations. The 
tailor, the shoemaker, the baker, and 
many other tradesmen, are the pro¬ 
ducers of the articles they deal in, so 
far as regards the last stage in the 
production. This union, however, of 
the functions of manufacturer and re¬ 
tailer, is only expedient when the article 
can advantageously be made at or near 
the place convqpient for retailing it, 
and is, besides, manufactured and sold 
in small parcels. When things have 
to he brought from a distance, the 
same person cannot effectually superin¬ 
tend both the making and the retailing 
of them: when they are best and most 
cheaply made on a large scale, a single 
manufactory requires so many local 
channels to carry off its supply, that 
the retailing is most conveniently dele¬ 
gated to other agency: and even shoes 
and coats, when they are to he furnished 
in large quantities at once, as for the 
supply of a regiment or of a workhouse, 
are usually obtained not directly from 
the producers, hut from intermediate 
dealers, who make it their business to 
ascertain from what producers they can 
he obtained best and cheapest. Even 
when things are destined to be at last 
sold by retail, convenience soon creates 
a class of wholesale dealers. When 
products and transactions have multi¬ 
plied beyond a certain point; when 
one manufactory supplies many shops, 
and one shop has often to obtain goods 
from many different manufactories, the 
loss of time and trouble both to the 
manufacturers and to the retailers by 
treating directly with one another, 
makes it more convenient to them to 
treat with a smaller number of great 
dealers or merchants, who only buy to 
sell again, collecting goods from the 
various producers, and distributing 
them to the retailers, to be by them 


25 

further distributed among the con¬ 
sumers. Of these various elements is 
composed the Distributing Class, whose 
agency is supplementary to that of the 
Producing Class: and the produce so 
distributed, or its price, is the source 
from which the distributors are remu¬ 
nerated for their exertions, and for the 
abstinence which enabled them to ad¬ 
vance the funds needful for the business 
of distribution. 

§ 7 . We have now completed the 
enumeration of the modes in which 
labour employed on external nature is 
subservient to production. But there 
is yet another mode of employing labour 
which conduces equally, though still 
more remotely, to that end: this is, 
labour of which the subject is human 
beings. Every human being has been 
brought up from infancy at the expense 
of much labour to some person or per¬ 
sons, and if this labour or part of it, 
had not been bestowed, the child would 
never have attained the age and 
strength which enable him to become 
a labourer in his turn. To the com¬ 
munity at large, the labour and ex¬ 
pense of rearing its infant population 
form a part of the outlay which is a 
condition of production, and which is 
to be replaced with increase from the 
future produce of their labour. By the 
individuals, this labour and expense are 
usually incurred from other motives 
than to obtain such ultimate return, 
and, for most purposes of political eco¬ 
nomy, need not be taken into account 
as expenses of production. But the 
technical or industrial education of the 
community; the labour employed in 
learning and in teaching the arts of 
production, in acquiring and communi¬ 
cating skill in those arts ; this labour 
is really, and in general solely, under¬ 
gone for the sake of the greater or more 
valuable produce thereby attained, and 
in order that a remuneration, equivalent 
or more than equivalent, may be reaped 
by the learner, besides an adequate re¬ 
muneration for the labour of the teacher, 
when a teacher has been employed. 

As the labour which confers produc¬ 
tive powers, whether of hand or of head, 
may be looked upon as part of the la- 



BOOK 1. CHAPTER II. § 8. 


26 

hour by winch society accomplishes its 
productive operations, or in other words, 
as part of what the produce costs to 
society, so too may the labour employed 
in keeping up productive powers; in 
preventing them from being destroyed 
or weakened by accident or disease. 
The labour of a physician or surgeon, 
when made use of by persons engaged 
in industry, must be regarded in the 
economy of society as a sacrifice in¬ 
curred, to preserve from perishing by 
death or infirmity that portion of the 
productive resources of society which is 
fixed in the lives and bodily or mental 
powers of its productive members. To 
the individuals, indeed, this forms but 
a part, sometimes an imperceptible part, 
of the motives that induce them to sub¬ 
mit to medical treatment: it is not 
principally from economical motives 
that persons have a limb amputated, 
or endeavour to be cured of a fever, 
though when they do so, there is gene¬ 
rally sufficient inducement for it even : 
on that score alone. This is, therefore, i 
one of the cases of labour and outlay ; 
which, though conducive to production, j 
yet not being incurred for that end, or ‘ 
for the sake of the returns arising from | 
it, are out of the sphere of most of the 
general propositions which political eco¬ 
nomy has occasion to assert respecting 
productive labour: though, when so¬ 
ciety and not the individuals are con¬ 
sidered, this labour and outlay must 
be regarded as part of the advance by 
which society effects its productive ope¬ 
rations, and for which it is indemnified 
b} r the produce. 

§ 8. Another kind of labour, usually 
classed as mental, but conducing to the 
ultimate product as directly, though 
not so immediately, as manual labour 
Itself, is the labour of the inventors of 
industrial processes. I say, usually 
classed as mental, because in reality it 
is not exclusively so. All human exer¬ 
tion is compounded of some mental and 
some bodily elements. The stupidest 
hodman, who repeats from day to day 
the mechanical act of climbing a ladder, 
performs a function partly intellectual; 
so much so, indeed, that the most in¬ 
telligent dog or elephant could not, 


probably, be taught to do it. The 
dullest human being, instructed before¬ 
hand, is capable of turning a mill; but 
a horse cannot turn it without some¬ 
body to drive and watch him. On the 
other hand, there is some bodily ingre¬ 
dient in the labour most purely mental, 
when it generates any external result. 
Newton could not have produced the 
Principia without the bodily exertion 
either of penmanship or of dictation; 
and he must have drawn many dia¬ 
grams, and written out many calcula¬ 
tions and demonstrations, while he was 
preparing it in his mind. Inventors, 
besides the labour of their brains, gene¬ 
rally go through much labour with their 
hands, in the models which they con- 
| struct and the experiments they have 
! to make before their idea can realize 
itself successfully in act. Whether 
mental, however, or bodily, their labour 
' is a part of that by which the produc¬ 
tion is brought about. The labour of 
Watt in contriving the steam-engine 
was as essential a part of production 
as that of the mechanics who build or 
the engineers who work the instru¬ 
ment ; and was undergone, no less than 
theirs, in the prospect of a remuneration 
from the produce. The labour of inven¬ 
tion is often estimated and paid on the 
very same plan as that of execution. 
Many manufacturers of ornamental 
goods have inventors in their employ¬ 
ment, who receive wages or salaries for 
designing patterns, exactly as others do 
for copying them. All this is strictly 
part of the labour of production; as the 
labour of the author of a book is equally 
a part of its production with that of the 
printer and binder. 

In a national, or universal point of 
view, the labour of the savant, or spe¬ 
culative thinker, is as much a part of 
production in the very narrowest sense, 
as that of the inventor of a practical 
art; many such inventions having been 
the direct consequences of theoretic 
discoveries, and every extension of 
knowledge of the powers of nature 
being fruitful ^f applications to the 
purposes of outward life. The electro¬ 
magnetic telegraph was the wonderful 
and most unexpected consequence of 
the experiments of CErsted and the 




LABOUR AS AN AGENT OF PRODUCTION. 


mathematical investigations of Am¬ 
pere : and the modern art of naviga¬ 
tion is an unforeseen emanation from 
the purely speculative and apparently 
merely curious inquiry, by the mathe¬ 
maticians of Alexandria, into the pro¬ 
perties of three curves formed by the 
intersection of a plane surface and a 
cone. No limit can be set to the im¬ 
portance, even in a purely productive 
and material point of view, of mere 
thought. Inasmuch, however, as these 
material fruits, though the result, are 
seldom the direct purpose of the pur¬ 
suits of savants, nor is their remu¬ 
neration in general derived from the 
increased production which may be 
caused incidentally, and mostly after 
a long interval, by their discoveries; 
this ultimate influence does not, for 
most of the purposes of political eco¬ 
nomy, require to be taken into con¬ 
sideration ; and speculative thinkers 
arc generally classed as the producers 
only of the books, or other useable or 
saleable articles, which directly ema¬ 
nate from them. But when (as in po¬ 
litical economy one should always be 
prepared to do) we shift our point of 
view, and consider not individual acts, 
and the motives by which they are 
determined, but national and universal 
results, intellectual speculation must 
be looked upon as a most influential 
part of the productive labour of society, 
and the portion of its resources em¬ 
ployed in carrying on and in remune¬ 
rating such labour, as a highly produc¬ 
tive part of its expenditure. 

§ 9. In the foregoing survey of the 
modes of employing labour in further¬ 
ance of production, I have made little 
use of the popular distinction of indus¬ 
try into agricultural, manufacturing, 
and commercial. Fox', in truth, this 
division fulfils very badly the purposes 
of a classification. Many great branches 
of productive industxy find no place in 
it, or not without much straining; for 
example (not to speak of hunters or 
fishers) the miner, the road-makei*, and 
the sailor. The limit, too, between 
agricultural and manufacturing indus- 
try cannot be precisely drawn. The 
miller, for instance, and the baker— 


27 

are they to be reckoned among agri- 
cultui’ists, or among manufacturers? 
Their occupation is in its nature ma¬ 
nufacturing ; the food has finally parted 
company with the soil before it is 
handed over to them: this, howevei', 
might be said with equal truth of the 
tln-esher, the winnower, the makers of 
butter and cheese; operations always 
counted as agricultui'al, probably be¬ 
cause it is the custom for them to be 
performed by pei'sons resident on the 
farm, and under the same superinten¬ 
dence as tillage. For many purposes, 
all these persons, the miller and baker 
inclusive, must be placed in the same 
class with ploughmen and reapers. 
They are all concerned in producing 
food, and depend for their remuneration 
on the food produced; when the one 
class abouixds and flourishes, the others 
do so too; they form collectively the 
“agricultural interest;” they render 
but one service to the community by 
their united labours, and are paid from 
one common source. Even the tillers 
of the soil, again, when the produce is 
not food, but the materials of what are 
commonly termed manufactures, belong 
in many respects to the same division 
in the economy of society as manufac¬ 
turers. The cotton-planter of Carolina, 
and the wool-grower of Australia, have 
more interests in common with the 
spinner and weaver than with the 
corn-grower. But, on the other hand, 
the industry which operates immedi¬ 
ately upon the soil has, as we shall see 
hereafter, some properties on which 
many important consequences depend, 
and which distinguish it from all the 
subsequent stages of production, whe¬ 
ther carried on by the same person or 
not; from the industry of the thresher 
and winnower, as much as from that of 
the cotton-spinner. When I speak, 
therefore, of agricultural laboiw, I shall 
generally mean this, and this exclu¬ 
sively, unless the conti'ary is either 
stated or implied in the context. The 
term manufacturing is too vague to be 
of much use when precision is required, 
and when I employ it, I wish to be un¬ 
derstood as intending to speak popu¬ 
larly rather than scientifically. 



28 


BOOK I. CHAPTER III. §1. 


CHAPTER IIR 

OF UNPRODUCTIVE LABOUR. 


§ 1. Labour is indispensable to pro¬ 
duction, but has not always production 
for its effect. There is much labour, 
and of a high order of usefulness, of 
which production is not the object. 
Labour has accordingly been distin¬ 
guished into Productive and Unpro¬ 
ductive. There has been not a little 
controversy among political economists 
on the question, what kinds of labour 
should be reputed to be unproductive; 
and they have not always perceived, 
that there was in reality no matter of 
fact in dispute between them. 

Many writers have been unwilling to 
class any labour as productive, unless 
its result is palpable in some material 
object, capable of being transferred 
from one person to another. There are 
others (among whom are Mr. M'Culloch 
and M. Say) who looking upon the 
word unproductive as a term of dis¬ 
paragement, remonstrate against im¬ 
posing it upon any labour which is 
regarded as useful—which produces a 
benefit or a pleasure worth the cost. 
The labour of officers of government, 
of the army and navy, of physicians, 
lawyers, teachers, musicians, dancers, 
actors, domestic servants, &c. when 
they really accomplish what they are 
paid for, and are not more numerous 
than is required for its performance, 
ought not, say these writers, to be 
“stigmatized” as unproductive, an ex¬ 
pression which they appear to regard 
as synonymous with wasteful or worth¬ 
less. But this seems to be a misunder¬ 
standing of the matter in dispute. Pro¬ 
duction not being the sole end of human 
existence, the term unproductive does 
not necessarily imply any stigma ; nor 
was ever intended to do so in the pre¬ 
sent case. The question is one of mere 
language and classification. Differ¬ 
ences of language, however, are by no 
means unimportant, even when not 
grounded on differences of opinion ; for 
though either of two expressions may 


be consistent with the whole truth, they 
generally tend to fix attention upon 
different parts of it. We must there¬ 
fore enter a little into the considera¬ 
tion of the various meanings which 
may attach to the words productive 
and unproductive when applied to- 
labour. 

In the first place, even in what is 
called the production of material ob¬ 
jects, it must be remembered that what 
is produced is not the matter composing 
them. All the labour of all the human 
beings in the world could not produce 
one particle of matter. To weave 
broadcloth is but to re-arrange, in a 
peculiar manner, the particles of wool: 
to grow corn is only to put a portion of 
matter called a seed, into a situation 
where it can draw together particles of 
matter from the earth and air, to form 
the new combination called a plant. 
Though we cannot create matter, we 
can cause it to assume properties, by 
which, from having been useless to us, 
it becomes useful. What wo produce, 
or desire to produce, is always, as M. 
Say rightly terms it, an utility. La¬ 
bour is not creative of objects, but of 
utilities. Neither, again, do we con¬ 
sume and destroy the objects them¬ 
selves ; the matter of which they were 
composed remains, more or less altered 
in form: what ha*< really been consumed 
is only the qualities by which they were 
fitted for the purpose they have been 
applied to. It is, therefore, pertinently 
asked by M. Say and others—since, 
when we are said to produce objects, 
we only produce utility, why should not 
all labour which produces utility be 
accounted productive ? Why refuse 
that title to the surgeon who sets a 
limb, the judge or legislator who con¬ 
fers security, and give it to the lapi¬ 
dary who cuts and polishes a diamond? 
Why deny it to the teacher from whom 
I learn an art by which I can gain my 
bread, and accord it to the confectioner 



UNPRODUCTIVE LABOUR. 29 


who makes bonbons for tbe momentary 
pleasure of a sense of taste ? 

It is quite true that all these kinds 
of labour are productive of utility; and 
the question which now occupies us 
could not have been a question at all, 
if the production of utility were enough 
to satisfy the notion which mankind 
have usually formed of productive la¬ 
bour. Production, and productive, are 
of course elliptical expressions, involv¬ 
ing the idea of a something produced ; 
but this something, in common appre¬ 
hension, I conceive to be, not utility, 
but Wealth. Productive labour means 
labour productive of wealth. We are 
recalled, therefore, to the question 
touched upon in our first chapter, what 
Wealth is, and whether only material 
products, or all useful products, are to 
be included in it. 

§ 2. Now the utilities produced by 
labour are of three kinds. They are, 

First, utilities fixed and embodied in 
outward objects ; by labour employed 
in investing external material things 
with properties which render them ser¬ 
viceable to human beings. This is the 
common case, and requires no illus¬ 
tration. 

Secondly, utilities fixed and embodied 
in human beings ; the labour being in 
this case employed in conferring on 
human beings, qualities which render 
them serviceable to themselves and 
others. To this class belongs the la¬ 
bour of all concerned in education; not 
only schoolmasters, tutors, and profes¬ 
sors, but governments, so far as they 
aim successfully at the improvement of 
the people; moralists, and clergymen, 
as far as productive of benefit; the 
labour of physicians, as far as instru¬ 
mental in preserving life and physical 
or mental efficiency ; of the teachers of 
bodily exercises, and of the various 
trades, sciences, and arts, together with 
the labour of the learners in acquiring 
them ; and all labour bestowed by any 
persons, throughout life, in improving 
the knowledge or cultivating the bodily 
or mental faculties of themselves or 
others. 

Thirdly and lastly, utilities not fixed 
or embodied in any object, but consist¬ 


ing in a mere service rendered ; a plea¬ 
sure given, an inconvenience or a pain 
averted, during a longer or a shorter 
time, but without leaving a permanent 
acquisition in the improved qualities of 
any person or thing ; the labour being 
employed in producing an utility di¬ 
rectly, not (as in the two former cases) 
in fitting some other thing to afford an 
utility. Such, for example, is the la¬ 
bour of the musical performer, the actor, 
the public declaimer or reciter, and the 
showman. Some good may no doubt 
be produced, and much more might be 
produced, beyond the moment, upon the 
feelings and disposition, or general state 
of enjoyment of the spectators; or in¬ 
stead of good there may be harm; but 
neither the one nor the other is the 
effect intended, is the result for which 
the exhibitor works and the spectator 
pays ; nothing but the immediate plea¬ 
sure. Such, again, is the labour of the 
army and navy ; they, at the best, pre¬ 
vent a country from being conquered, 
or from being injured or insulted, which 
is a service, but in all other respects 
leave the country neither improved nor 
deteriorated. Such, too, is the labour 
of the legislator, the judge, the officer 
of justice, and all other agents of go¬ 
vernment, in their ordinary functions, 
apart from any influence they may 
exert on the improvement of the na¬ 
tional mind. The service which they 
render, is to maintain peace and secu¬ 
rity ; these compose the utility which 
they produce. It may appear to some, 
that carriers, and merchants or dealers, 
should be placed in this same class, 
since their labour does not add any 
properties to objects : but I reply that 
it does: it adds the property of being 
in the place where they are wanted, 
instead of being in some other place : 
which is a very useful property, and 
the utility it confers is embodied in tbe 
things themselves, which now actually 
are in the place where they are re¬ 
quired for use, and in consequence of 
that increased utility could be sold at 
an increased price, proportioned to the 
labour expended in conferring it. This 
labour, therefore, docs not belong to the 
third class, but to the first. 



BOOK I. CHAPTER III. § 3. 


30 

§ 3. We liave now to consider which 
of these three classes of labour should 
he accounted productive of wealth, since 
that is what the term productive, when 
used by itself, must be understood to 
import. Utilities of the third class, 
consisting in pleasures which only exist 
while being enjoyed, and services which 
only exist while being performed, can¬ 
not be spoken of as wealth, except by 
an acknowledged metaphor. It is es¬ 
sential to the idea of wealth to be sus¬ 
ceptible of accumulation : things which 
cannot, after being produced, be kept 
for some time before being used, are 
never, I think, regarded as wealth, 
since however much of them may be 
produced and enjoyed, the person bene¬ 
fited by them is no richer, is nowise 
improved in circumstances. But there 
is not so distinct and positive a viola¬ 
tion of usage in considering as wealth 
any product which is both useful and 
susceptible of accumulation. The skill, 
and the energy and perseverance, of 
the artisans of a country, are reckoned 
part of its wealth, no less than their 
tools and machinery.* According to 
this definition, we should regard all 
labour as productive which is employed 

* gome authorities look upon it as an essen¬ 
tial element in the idea of wealth, that it 
should be capable not solely of being accu¬ 
mulated, but of being transferred; and inas¬ 
much as the valuable qualities, and even 
the productive capacities, of a human being 
cannot be detached from him and passed to 
some one else, they deny to these the appel¬ 
lation of wealth, and to the labour expended 
in acquiring them the name of productive 
labour. It seems to me, however, that the 
skill of an artisan (for instance) being both 
a desirable possession and one of a certain 
durability (not to say productive even of 
material wealth),there is no better reason for 
refusing to it the title of wealth because it is 
attached to a man, than to a coalpit or a 
manufactory because they are attached to a 
place. Besides, if the skill itself cannot be 
parted with to a purchaser, the use of it may; 
if it cannot be sold it can be hired; and it 
may be, and is, sold outright in all countries 1 
whose laws permit that the man himself 
should be sold along with it. Its defect of 
transferability does not result from a natural, 
but from a legal and moral obstacle. 

The human being himself (as formerly 
observed) I do not class as wealth. He is 
the purpose for w T hich wealth exists. But 
his acquired capacities, which exist only as 
means, and have been called into existence 
by labour, fall rightly, as it seems to me, 
within that designation. 


in creating permanent utilities, whe¬ 
ther embodied in human beings, or in 
any other animate or inanimate objects. 
This nomenclature I have, in a former 
publication,f recommended as the most 
conducive to the ends of classification; 
and I am still of that opinion. 

But in applying the term wealth to 
the industrial capacities of human be¬ 
ings, there seems always, in popular 
apprehension, to be a tacit reference to 
material products. The skill of an 
artisan is accounted wealth, only as 
being the means of acquiring wealth in 
a material sense; and any qualities 
not tending visibly to that object are 
scarcely so regarded at all. A country 
would hardly be said to be richer, ex¬ 
cept by a metaphor, however precious 
a possession it might have in the 
genius, the virtues, or the accomplish¬ 
ments of its inhabitants ; unless indeed 
these were looked upon as marketable 
articles, by which it could attract the 
material wealth of other countries, as 
the Greeks of old, and several modern 
nations have done. While, therefore, 
I should prefer, were I constructing a 
new technical language, to make the 
distinction turn upon the permanence 
rather than upon the materiality of the 
product, yet when employing terms 
which common usage has taken com¬ 
plete possession of, it seems advisable 
so to employ them as to do the least 
possible violence to usage; since any 
improvement in terminology obtained 
by straining the received meaning of a 
popular phrase, is generally purchased 
beyond its value, by the obscurity 
arising from the conflict between new 
and old associations. 

I shall, therefore, in this treatise, 
when speaking of wealth, understand 
by it only what is called material 
wealth, and by productive labour only 
those kinds of exertion which produce 
utilities embodied in material objects. 
But in limiting myself to this sense of 
the word, I mean to avail myself of the 
full extent of that restricted accepta¬ 
tion, and I shall not refuse the appella¬ 
tion productive, to labour which yields 

t Essays on some Unsettled Questions of 
Political Economy. Essay III. On the words 
Productive and Unproductive. 







UNPRODUCTIVE LABOUR. 


no material product as its direct result, 
provided that an increase of material 
products is its ultimate consequence. 
Tims, labour expended in the acqui¬ 
sition of manufacturing skill, I class as 
productive, not in virtue of the skill 
itself, but of the manufactured products 
created by the skill, and to the creation 
of which the labour of learning the 
trade is essentially conducive. The 
labour of officers of government in 
affording the protection which, afforded 
in some manner or other, is indispen¬ 
sable to the prosperity of industry, must 
be classed as productive even of mate¬ 
rial wealth, because without it, mate¬ 
rial wealth, in anything like its pre¬ 
sent abundance, could not exist. Such 
labour may be said to be productive 
indirectly or mediately, in opposition 
to the labour of the ploughman and the 
cotton-spinner, which are productive 
immediately. They are all alike in 
this, that they leave the community 
richer in material products than they 
found it; they increase, or tend to in¬ 
crease, material wealth. 

§ 4. By Unproductive Labour, on 
the contrary, will be understood labour 
which does not terminate in the crea¬ 
tion of material wealth; which, how¬ 
ever largely or successfully practised, 
does not render the community, and the 
world at large, richer in material pro¬ 
ducts, but poorer by all that is con¬ 
sumed by the labourers while so em¬ 
ployed. 

All labour is, in the language of 
political economy, unproductive, which 
ends in immediate enjoyment, without 
any increase of the accumulated stock 
of permanent means of enjoyment. 
And all labour, according to our pre¬ 
sent definition, must be classed as un¬ 
productive, which terminates in a per¬ 
manent benefit, however important, 
provided that an increase of material 
products forms no part of that benefit. 
The labour of saving a friend’s hie is 
not productive, unless the friend is a 
productive labourer, and produces more 
than he consumes. To a religious per¬ 
son the saving of a soul must appear a 
far more important service than the 
saving of a life ; but he will not tliere- 


31 

fore call a missionary or a clergyman 
productive labourers, unless they teach, 
as the South Sea Missionaries have in 
some cases done, the arts of civilization 
in addition to the doctrines of their 
religion. It is, on the contrary, evi¬ 
dent that the greater number of mis¬ 
sionaries or clergymen a nation main¬ 
tains, the less it has to expend on other 
things; while the more it expends 
judiciously in keeping agriculturists 
and manufacturers at work, the more it 
will have for every other purpose. By 
the former it diminishes, cceteris pari¬ 
bus, its stock of material products ; by 
the latter, it increases them. 

Unproductive may be as useful as pro¬ 
ductive labour ; it may be more useful, 
even in point of permanent advantage; 
or its use may consist only in pleasur¬ 
able sensation, which when gone leaves 
no trace ; or it may not afford even 
this, but may be absolute waste. In 
any case society or mankind grow no 
richer by it, but poorer. All material 
products consumed by any one while he 
produces nothing, are so much sub¬ 
tracted, for the time, from the material 
products which society would other¬ 
wise have possessed. But though 
society grows no richer by unproduc¬ 
tive labour, the individual may. An 
unproductive labourer may receive for 
his labour, from those who derive 
pleasure or benefit from it, a remunera¬ 
tion which may be to him a considera¬ 
ble source of wealth; but his gain is 
balanced by their loss; they may 
have received a full equivalent for 
their expenditure, but they are so 
much poorer by it. When a tailor 
makes a coat and sells it, there is a 
transfer of the price from the customer 
to the tailor, and a coat besides which 
did not previously exist; but what is 
gained by an actor is a mere transfer 
from the spectator’s funds to his, leav¬ 
ing no article of wealth for the specta¬ 
tor’s indemnification. Thus the com¬ 
munity collectively gains nothing by 
the actor’s labour; and it loses, of his 
receipts, all that portion which he con¬ 
sumes, retaining only that which ho 
lays by. A community, however, may 
add to its wealth by unproductive 
labour, at the expense of other corn- 



S2 BOOK I. CHAPTER III. § 5. 


munities, as an individual may at the 
expense of other individuals. The 
gains of Italian opera singers, German 
governesses, French ballet dancers, 
&c., are a source of wealth, as far as 
they go, to their respective countries, 
if they return thither. The petty 
states of Greece, especially the ruder 
and more backward of those states, 
were nurseries of soldiers, who hired 
themselves to the princes and satraps 
•of the East to carry on useless and de¬ 
structive wars, and returned with their 
savings to pass their declining years in 
their ov n country: these were unpro¬ 
ductive labourers, and the pay they 
received, togetherwith the plunder they 
took, was an outlay without return to 
the countries which furnished it; but, 
though no gain to the world, it was a 
gain to Greece. At a later period the 
same country and its colonies supplied 
the Roman empire with another class 
of adventurers, who, under the name of 
philosophers or of rhetoricians, taught 
to the youth of the higher classes what 
were esteemed the most valuable ac¬ 
complishments : these were mainly 
unproductive labourers, but their ample 
recompense was a source of wealth to 
their own country. In none of these 
cases was there any accession of 
wealth to the world. The services of 
the labourers, if useful, were obtained 
at a sacrifice to the world of a portion 
of material wealth ; if useless, all that 
these labourers consumed was, to the 
world, waste. 

To be wasted, however, is a liability 
not confined to unproductive labour. 
Productive labour may equally be 
wasted if more of it is expended than 
really conduces to production. If de¬ 
fect of skill in labourers, or of judgment 
in those who direct them, causes a 
misapplication of productive industry ; 
if a farmer persists in ploughing with 
three horses and two men, when ex¬ 
perience has shown that two horses 
and one man are sufficient, the sur¬ 
plus labour, though employed for pur¬ 
poses of production, is wasted. If a 
new process is adopted which proves 
no better, or not so good as those before 
in use, the labour expended in perfect¬ 
ing the invention and in carrying it 


into practice, though employed for a 
productive purpose, is wasted. Pro¬ 
ductive labour may render a nation 
poorer, if the wealth it produces, that 
is, the increase it makes in the stock 
of useful or agreeable things, be of a 
kind not immediately wanted: as 
when a commodity is unsaleable, be¬ 
cause produced in a quantity beyond 
the present demand ; or when specula¬ 
tors build docks and warehouses before 
there is any trade. The bankrupt 
states of North America, with their 
premature railways and canals, have 
made this kind of mistake ; and it 
was for some time doubtful whether 
England, in the disproportionate de¬ 
velopment of railway enterprise, had 
not, in some degree, followed the 
example. Labour sunk in expectation 
of a distant return, when the great 
exigencies or limited resources of the 
community require that the return be 
rapid, may leave the country not only 
poorer in the meanwhile, by all which 
those labourers consume, but less rich 
even ultimately than if immediate re¬ 
turns had been sought in the first 
instance, and enterprises for distant 
profit postponed. 

§ 5. The distinction of Productive 
and Unproductive is applicable to con¬ 
sumption as well as to labour. All the 
members of the community are not 
labourers, but all are consumers, and 
consume either unproductively or pro¬ 
ductively. Whoever contributes no¬ 
thing directly or indirectly to produc¬ 
tion, is an unproductive consumer. 
The only productive consumers are 
productive labourers; the labour of 
direction being of course included, as 
well as that of execution. But the 
consumption even of productive labour¬ 
ers is not all of it productive consump¬ 
tion. There is unproductive consump¬ 
tion by productive consumers. What 
they consume in keeping up or im¬ 
proving their health, strength, and 
capacities of woi’k, or in rearing other 
productive labourers to succeed them, 
is productive consumption. But con¬ 
sumption on pleasures or luxuries, 
whether by the idle or by the indus¬ 
trious, since production is neither its 



UNPRODUCTIVE LABOUR. 33 


object nor is in any way advanced by 
it, must be reckoned unproductive: 
with a reservation perhaps of a certain 
quantum of enjoyment which may be 
classed among necessaries, since any¬ 
thing short of it would not be consistent 
with the greatest efficiency of labour. 
That alone is productive consumption, 
which goes to maintain and increase 
the productive powers of the commu¬ 
nity ; either those residing in its soil, 
in its materials, in the number and 
efficiency of its instruments of produc¬ 
tion, or in its people. 

There are numerous products which 
*nay be said not to admit of being con¬ 
sumed otherwise than unproductively. 
The annual consumption of gold lace, 
June apples, or champagne, must be 
reckoned unproductive, since these 
things give no assistance to produc¬ 
tion, nor any support to life or strength, 
but what would equally be given by 
things much less costly. Hence it 
might be supposed that the labour em¬ 
ployed in producing them ought not to 
be regarded as productive, in the sense 
in which the term is understood by 

f )olitical economists. I grant that no 
abour tends to the permanent enrich¬ 
ment of society, which is employed in 
producing things for the use of unpro¬ 
ductive consumers. The tailor who 
makes a coat for a man who produces 
nothing, is a productive labourer; but 
in a few weeks or months the coat is 
worn out, while the wearer has not 
produced anything to replace it, and 
the community is then no richer by the 
labour of the tailor, than if the same 
sum had been paid for a stall at the 
opera. Nevertheless, society has been 
richer by the labour while the coat 
lasted, that is, until society, through 
one of its unproductive members, chose 
to consume the produce of the labour 
unproductively. The case of the gold 
lace or the pine apple is no further 
different, than that they are still fur¬ 
ther removed than the coat from the 
character of necessaries. These things 
also are wealth until they have been 
consumed. 

§ 6. We see, however, by this, that 
there is a distinction, more important 

p.js 


to the wealth of a community than 
even that between productive and un¬ 
productive labour; the distinction, 
namely, between labour for the supply 
of productive, and for the supply of 
unproductive, consumption; between 
labour employed in keeping up or in 
adding to the productive resources of 
the country, and that which is em¬ 
ployed otherwise. Of the produce of 
the country, a part only is destined to 
be consumed productively; the re¬ 
mainder supplies the unproductive con¬ 
sumption of producers, and the entire 
consumption of the unproductive classes. 
Suppose that the proportion of the 
annual produce applied to the first pur¬ 
pose amounts to half; then one-half 
the productive labourers of the country 
are all that are employed in the opera¬ 
tions on which the permanent wealth 
of the country depends. The other 
half are occupied from year to year and 
from generation to generation in pro¬ 
ducing things which are consumed and 
disappear without return ; and what¬ 
ever this half consume is as completely 
lost, as to any permanent effect on the 
national resources, as if it were con¬ 
sumed unproductively. Suppose that 
this second half of the labouring popu¬ 
lation ceased to work, and that the 
government or their parishes main¬ 
tained them in idleness for a whole 
year: the first haif would suffice to 
produce, as they had done before, their 
own necessaries and the necessaries of 
the second half, and to keep the stock 
of materials and implements undi¬ 
minished : the unproductive classes, 
indeed, would be either starved or 
obliged to produce their own subsist¬ 
ence, and the whole community would 
be reduced during a year to bare neces¬ 
saries; but the sources of production 
would be unimpaired, and the next 
year there would not necessarily be a 
smaller produce than if no such interval 
of inactivity had occurred; while if 
the case had been reversed, if the first 
half of the labourers had suspended 
their accustomed occupations, and the 
second half had continued theirs, the 
country at the end of the twelvemonth 
would have been entirely impoverished. 

It would be a great error to regret 

1 ) 



U BOOK I. CHAPTER IV. § 1. 


the large proportion of the annual pro¬ 
duce, which in an opulent country goes 
to supply unproductive consumption. 
It would be to lament that the com¬ 
munity has so much to spare from its 
necessities, for its pleasures and for all 
higher uses. This portion of the pro¬ 
duce is the fund from which all the 
wants of the community, other than 
that of mere living, are provided for; 
the measure of its means of enjoyment, 
and of its power of accomplishing all 
purposes not productive. That so great 


a surplus should be available for such 
purposes, and that it should be applied 
to them, can only be a subject of con¬ 
gratulation. The things to be re¬ 
gretted, and which are not incapable of 
being remedied, are the prodigious 
inequality with which this surplus is 
distributed, the little worth of the ob¬ 
jects to which the greater part of it is 
devoted, and the large share which falls 
to the lot of pet sons who render no 
equivalent service in return. 


CHAPTER IV. 

OF CAPITAL. 


§ 1. It has been seen in the pre¬ 
ceding chapters that besides the pri¬ 
mary and universal requisites of pro¬ 
duction, labour and natural agents, 
there is another requisite without which 
no productive operations beyond the 
rude and scanty beginnings of primitive 
industry, are possible : namely, a stock, 
previously accumulated, of the products 
of former labour. This accumulated 
stock of the produce of labour is termed 
Capital. The function of Capital in 
production, it is of the utmost import¬ 
ance thoroughly to understand, since 
a number of the erroneous notions with 
which our subject is infested, originate 
in an imperfect and confused appre¬ 
hension of this point. 

Capital, by persons wholly unused 
to reflect on the subject, is supposed to 
be synonymous with money. To ex¬ 
pose this misapprehension, would be to 
repeat what has been said in the intro¬ 
ductory chapter. Money is no more 
synonymous with capital than it is 
with wealth. Money cannot in itself 
perform any part of the office of capital, 
since it can afford no assistance to 
production. To do this, it must be 
exchanged for other things ; and any¬ 
thing, which is susceptible of being 
exchanged for other things, is capable 
of contributing to production in the 
same degree. What capital does for 


production, is to afford the shelter, 
protection, tools and materials which 
the work requires, and to feed and 
otherwise maintain the labourers during 
the process. These are the services 
which present labour requires from 
past, and from the produce of past, 
labour. "Whatever things are destined 
for this use—destined to supply pro¬ 
ductive labour with these various pre¬ 
requisites—are Capital. 

To familiarize ourselves with the 
conception, let us consider what is 
done w T ith the capital invested in any 
of the branches of business which com¬ 
pose the productive industry of a 
country. A manufacturer, for example, 
has one part of his capital in the form 
of buildings, fitted and destined for 
carrying on his branch of manufacture. 
Another part he has in the form of 
machinery. A third consists, if he be 
a spinner, of raw cotton, flax, or wool; 
if a weaver, of flaxen, woollen, silk, or 
cotton, thread ; and the like, according 
to the nature of the manufacture. 
Food and clothing for his operatives, it 
is not the custom of the present age 
that he should directly provide; and 
few capitalists, except the producers of 
food or clothing, have any portion 
worth mentioning of their capital in 
that shape. Instead of this, each 
capitalist has money, which he pays to 





CAPITAL. 3.* 


his workpeople, and so enables them to 
supply themselves : he has also finished 
goods in his warehouses, by the sale of 
which he obtains more money, to em¬ 
ploy in the same manner, as well as to 
replenish his stock of materials, to 
keep his buildings and machinery in 
repair, and to replace them when worn 
out. His money and finished goods, 
however, are not wholly capital, for he 
does not wholly devote them to these 
purposes : he employs a part of the 
one, and of the proceeds of the other, 
in supplying his personal consumption 
and that of his family, or in hiring 
grooms and valets, or maintaining 
hunters and hounds, or in educating 
his children, or in paying taxes, or in 
charity. What then is his capital ? 
Precisely that part of his possessions, 
whatever it be, which is to constitute 
his fund for carrying on fresh produc¬ 
tion. It is of no consequence that a 
part, or even the whole of it, is in a 
form in which it cannot directly supply 
the wants of labourers. 

8uppose, for instance, that the capi¬ 
talist is a hardware manufacturer, and 
that his stock in trade, over and above 
his machinery, consists at present 
wholly in iron goods. Iron goods 
cannot feed labourers. Nevertheless, 
by a mere change of the destination of 
these iron goods, he can cause labourers 
to be fed. Suppose that with a portion 
of the proceeds he intended to maintain 
a pack of hounds, or an establishment 
of servants ; and that he changes his 
intention, and employs it in his busi¬ 
ness, paying it in wages to additional 
workpeople. These workpeople are 
enabled to buy and consume the food 
which would otherwise have been con¬ 
sumed by the hounds or by the ser¬ 
vants ; and thus without the employer’s 
having seen or touched one particle of 
the food, his conduct has determined 
that so much more of the food existing 
in the country has been devoted to the 
use of productive labourers, and so 
much less consumed in a manner 
wholly unproductive. Now vary the 
hypothesis, and suppose that what is 
thus paid in wages would otherwise 
have been laid out not in feeding ser¬ 
vants or hounds, but in buying plate 


and jewels ; and in order to render the 
effect perceptible, let us suppose that 
the change takes place on a considera¬ 
ble scale, and that a large sum ijs 
diverted from buying plate and jewels 
to employing productive labourers, 
whom we shall suppose to have been 
previously, like the Irish peasantry, 
only half employed and half fed. The 
labourers, on receiving their increased 
wages, will not lay them out in plate 
and jewels, but in food. There is not, 
however, additional food in the country; 
nor any unproductive labourers or ani¬ 
mals, as in the former case, whose food 
is set free for productive purposes. 
Food will therefore be imported if 
possible ; if not possible, the labourers 
will remain for a season on their short 
allowance: but the consequence of 
this change in the demand for com¬ 
modities, occasioned by the change in 
the expenditure of the capitalists from' 
unproductive to productive, is that next 
year more food will be produced, and 
less plate and jewellery. So that 
again, without having had anything to 
do with the food of the labourers 
directly, the conversion by individuals 
of a portion of their property, no matter 
of what sort, from an unproductive 
destination to a productive, has had the 
effect of causing more food to be appro¬ 
priated to the consumption of produc¬ 
tive labourers. The distinction, then, 
between Capital and Not-capital, does 
not lie in the kind of commodities, but 
in the mind of the capitalist—in his 
will to employ them for one purpose 
rather than another ; and all property, 
however ill adapted in itself for the 
use of labourers, is a part of capital, so 
soon as it, or the value to be received 
from it, is set apart for productive re¬ 
investment. The sum of all the values 
so destined by their respective posses¬ 
sors, composes the capital of the country. 
Whether all those values are in a shape 
directly applicable to productive uses, 
makes no difference. Their shape, 
whatever it may be, is a temporaiy 
accident; but, once destined for pro¬ 
duction, they do not fail to find a way 
of transforming themselves into thing# 
capable of being applied to it. 




36 BOOK I. CHAPTER IV. § 2. 


§ 2. As whatever of the produce of 
the country is devoted to production is 
capital, so, conversely, the whole of the 
capital of the country is devoted to 

{ >roduction. This second proposition, 
lowever, must be taken with some 
limitations and explanations. A fund 
may be seeking for productive employ¬ 
ment, and find none, adapted to the 
inclinations of its possessor : it then is 
capital still, but unemployed capital. 
Or the stock may consist of unsold 
goods, not susceptible of direct applica¬ 
tion to productive uses, and not, at the 
moment, marketable: these, until sold, 
are in the condition of unemployed 
capital. Again, artificial or accidental 
circumstances may render it necessary 
to possess a larger stock in advance, 
that is, a larger capital before entering 
on production, than is required by the 
nature of things. Suppose that the 
government lays a tax on the produc¬ 
tion in one of its earlier stages, as for 
instance by taxing the material. The 
manufacturer has to advance the tax, 
before commencing the manufacture, 
and is therefore under a necessity of 
having a larger accumulated fund than 
is required for, or is actually employed 
in, the production which he carries on. 
He must have a larger capital, to 
maintain the same quantity of produc¬ 
tive labour; or (what is equivalent) 
with a given capital he maintains less 
labour. This mode of levying taxes, 
therefore, limits unnecessarily the in¬ 
dustry of the country: a portion of the 
fund destined by its owners for produc¬ 
tion being diverted from its purpose, 
and kept in a constant state of advance 
to the government. 

For another example : a farmer may 
enter on his farm at such a time of the 
year, that he may be required to pay 
one, two, or even three quarters’ rent 
before obtaining any return from the 
produce. This, therefore, must be paid 
out of his capital. Now rent, when 
paid for the land itself, and not for 
improvements made in it by labour, is 
not a productive expenditure. It is 
not an outlay for the support of labour, 
or for the provision of implements or 
materials the produce of labour. It is 
the price paid for the use of an appro¬ 


priated natural agent. This natural 
agent is indeed as indispensable (and 
even more so) as any implement: but 
the having to pay a price for it, is not. 
In the case of the implement (a thing 
produced by labour) a price of some 
sort is the necessary condition of its 
existence: but the land exists by 
nature. The payment for it, therefore, 
is not one of the expenses of produc¬ 
tion ; and the necessity of making the 
payment out of capital, makes it requi¬ 
site that there should be a greater 
capital, a greater antecedent accumu¬ 
lation of the produce of past labour, 
than is naturally necessary, or than is 
needed where land is occupied on a 
different system. This extra capital, 
though intended by its owners for pro¬ 
duction, is in reality employed unpro- 
ductively, and annually replaced, not 
from any produce of its own, but from 
the produce of the labour supported by 
the remainder of the farmer’s capital. 

Finally, that large portion of the 
productive capital of a country which 
is employed in paying the wages and 
salaries of labourers, evidently is not, 
all of it, strictly and indispensably 
necessary for production. As much of 
it as exceeds the actual necessaries of 
life and health (an excess wdiich in the 
case of skilled labourers is usually con¬ 
siderable) is not expended in supporting 
labour, but in remunerating it, and the 
labourers could w r ait for this part of 
their remuneration until the production 
is completed: it needs not necessarily 
pre-exist as capital: and if they un¬ 
fortunately had to forego it altogether, 
the same amount of production might 
take place. In order that the wdiole 
remuneration of the labourers should 
be advanced to them in daily or w-eekly 
payments, there must exist in advance, 
and be approiniated to productive use, 
a greater stock, or capital, than would 
suffice to carry on the existing extent 
of production: greater, by whatever 
amount of remuneration the labourers 
receive, beyond what the self-interest 
of a prudent slave-master w'ould assign 
to his slaves. In truth, it is only after 
an abundant capital bad already been 
accumulated, that the practice of pay¬ 
ing in advance any remuneration of 





CAPITAL. 


labour beyond a bare subsistence, could 
possibly have arisen: since whatever is 
so paid, is not really applied to produc¬ 
tion, but to the unproductive consump¬ 
tion of productive labourers, indicating 
a fund for production sufficiently ample 
to admit of habitually diverting a part 
of it to a mere convenience. 

It will be observed that I have 
assumed, that the labourers are always 
subsisted from capital: and this is 
obviously the fact, though the capital 
needs not necessarily be furnished by a 
person called a capitalist. When the 
labourer maintains himself by funds of 
his own, as when a peasant-farmer or 
proprietor lives on the produce of his 
land, or an artisan works on his own 
account, they are still supported by 
capital, that is, by funds provided in 
advance. The peasant does not subsist 
this year on the produce of this year's 
harvest, but on that of the last. The 
artisan is not living on the proceeds of 
the work he has in hand, but on those 
of work previously executed and dis¬ 
posed of. Each is supported by a small 
capit al of his own, which he periodically 
replaces from the produce of his labour. 
The large capitalist is, in like manner, 
maintained from funds provided in 
advance. If he personally conducts 
his operations, as much of his personal 
or household expenditure as does not 
exceed a fair remuneration of his labour 
at the market price, must be considered 
a part of his capital, expended, like any 
other capital, for production: and his 
personal consumption, so far as it con¬ 
sists of necessaries, is productive con¬ 
sumption. 

§ 3. At the risk of being tedious, 
I must add a few more illustrations, to 
bring out into a still clearer and stronger 
light the idea of Capital. As M. Say 
truly remarks, it is on the very elements 
of our subject that illustration is most 
usefully bestowed, since the greatest 
errors which prevail in it may be traced 
to the want of a thorough mastery 
over the elementary ideas. Nor is this 
surprising : a branch may be diseased 
and all the rest healthy, but unsound¬ 
ness at the root diffuses unhealthinets 
through the whole tree. 


37 

Let us therefore consider whether, 
and in what cases, the property of those 
who live on the interest of what they 
possess, without being personally en¬ 
gaged in production, can be regarded 
as capital. It is so called in common 
language, and, with reference to the 
individual, not improperly. All funds 
from which the possessor derives an in¬ 
come, which income he can use without 
sinking and dissipating the fund itself, 
are to him equivalent to capital. But 
to transfer hastily and inconsiderately 
to the general point of view, proposi¬ 
tions which are true of the individual, 
has been a source of innumerable 
errors in political economy. In the 
present instance, that which is virtually 
capital to the individual, is or is not 
capital to the nation, according as the 
fund which by the supposition he has 
not dissipated, has or has not been dis¬ 
sipated by somebody else. 

For example, let property of the 
value of ten thousand pounds belonging 
to A, be lent to B, a farmer or manufac¬ 
turer, and employed profitably in B’s 
occupation. It is as much capital as if 
it belonged to B. A is really a farmer 
or manufacturer, not personally, but in 
respect of his property. Capital worth 
ten thousand pounds is employed in 
pi’oduction—in maintaining labourers 
and providing tools and materials; 
which capital belongs to A, while B 
takes the trouble of employing it, and 
receives for his remuneration the dif¬ 
ference between the profit which it 
yields and the interest he pays to A. 
This is the simplest case. 

Suppose next that A’s ten thousand 
pounds, instead of being lent to B, are 
lent on mortgage to C, a landed pro¬ 
prietor, by whom they are employed in 
improving the productive powers of his 
estate, by fencing, draining, road-mak¬ 
ing, or permanent manures. This is 
productive employment. The ten thou¬ 
sand pounds are sunk, but not dis¬ 
sipated. They yield a permanent re¬ 
turn ; the land now affords an increase 
of produce, sufficient, in a few years, if 
the outlay has been judicious, toreplace 
the amount, and in time to multiply it 
manifold. Here, then, is a value of 
ten thousand pounds, employed in in- 




38 BOOK I. CHAPTER IV. § 3. 


creasing the produce of the country. 
This constitutes a capital, for which C, 
if he lets his land, receives the returns 
in the nominal form of increased rent; 
and the mortgage entitles A to receive 
from these returns, in the shape of in¬ 
terest, such annual sum as has been 
agreed on. We will now vary the cir¬ 
cumstances, and suppose that C does 
not employ the loan in improving his 
land, but in paying off a former mort¬ 
gage, or in making a provision for 
children. Whether the ten thousand 
pounds thus employed are capital or 
not, will depend on what is done with 
the amount by the ultimate receiver. 
If the children invest their fortunes in 
a productive employment, or the mort¬ 
gagee on being paid off lends the 
amount to another landholder to im¬ 
prove his land, or to a manufacturer to 
extend his business, it is still capital, 
because productively employed. 

Suppose, however, that C, the bor¬ 
rowing landlord, is a spendthrift, who 
burdens his land not to increase his 
fortune but to squander it, expending 
the amount in equipages and entertain¬ 
ments. In a year or two it is dissi¬ 
pated, and without return. A is as 
rich as before ; he has no longer his 
ten thousand pounds, but he has a lien 
on the land, which he could still sell for 
that amount. C, however, is 10,000Z. 
poorer than formerly; and nobody is 
richer. It may be said that those are 
richer who have made profit out of the 
money while it was being spent. No 
doubt if C lost it by gaming, or was 
cheated of it by his servants, that is a 
mere transfer, not a destruction, and 
those who have gained the amount may 
employ it productively. But if C has 
received the fair value for his expendi¬ 
ture in articles of subsistence or luxury, 
which he has consumed on himself, or 
by means of his servants or guests, 
these articles have ceased to exist, and 
nothing has been produced to replace 
them : while if the same sum had been 
employed in farming or manufacturing, 
the consumption which would have 
taken place would have been more than 
balanced at the end of the year by new 
products, created by the labour of those 
who would in that case have been the 


consumers. By C’s prodigality, that 
which would have been consumed with 
a return, is consumed without return. 
C’s tradesmen may have made a profit 
during the process ; but if the capital 
had been expended productively, an 
equivalent profit would have been made 
by builders, fencers, tool-makers, and 
the tradespeople who supply the con¬ 
sumption of the labouring classes ; while 
at the expiration of the time (to say 
nothing of any increase), C would have 
had the ten thousand pounds or its 
value replaced to him, which now he 
has not. There is, therefore, on the 
general result, a difference to the dis¬ 
advantage of the community, of at least 
ten thousand pounds, being the amount 
of C’s unproductive expenditure. To 
A, the difference is not material, since 
his income is secured to him, and while 
the security is good, and the market 
rate of interest the same, he can always 
sell the mortgage at its original value. 
To A, therefore, the lien of ten thou¬ 
sand pounds on C’s estate, is virtually 
a capital of that amount; but is it so 
in reference to the community? It is 
not. A had a capital of ten thousand 
pounds, but this has been extinguished 
—dissipated and destroyed by C’s pro¬ 
digality. A now receives his income, 
not from the produce of his capital, but 
from some other source of income be¬ 
longing to C, probably from the rent of 
his land, that is, from payments made 
to him by farmers out of the produce of 
their capital. The national capital is 
diminished by ten thousand pounds, 
and the national income by all which 
those ten thousand pounds, employed as 
capital, would have produced. The 
loss does not fall on the owner of the 
destroyed capital, since the destroyer 
has agreed to indemnify him for it. 
But his loss is only a small portion of 
that sustained by the community, since 
what was devoted to the use and con¬ 
sumption of the proprietor was only the 
interest; the capital itself was, or 
would have been, employed in the per¬ 
petual maintenance of an equivalent 
number of labourers, regularly repro¬ 
ducing what they consumed : and of 
this maintenance they are deprived 
without compensation. 





FUNDAMENTAL PROPOSITIONS ON CAPITAL. 


Let us now vary the hypothesis still | 
further, and suppose that the money is 
borrowed, not by a landlord, but by the 
State. A lends his capital to Govern¬ 
ment to carry on a war: he buys from 
the State what are called government 
securities; that is, obligations on the 
government to pay a certain annual in¬ 
come. If the government employed 
the money in making a railroad, this 
might be a productive employment, and 
A’s property would still be used as 
capital; but since it is employed in 
war, that is, in the pay of officers and 
soldiers who produce nothing, and in 
destroying a quantity of gunpowder and 
bullets without return, the government 
is in the situation of C, the spendthrift 
landlord, and A’s ten thousand pounds 
are so much national capital which 
once existed, but exists no longer: 
virtually thrown into the sea, as far as 
wealth or production is concerned; 
though for other reasons the employ¬ 
ment of it may have been justifiable. 
A’s subsequent income is derived, not 
from the produce of his own capital, but 
from taxes drawn from the produce of 
the remaining capital of the commu¬ 
nity ; to whom his capital is not yield- 


39 

ing any return, to indemnify them for 
the payment; it is lost and gone, and 
what he now possesses is a claim on the 
returns to other people’s capital and in¬ 
dustry. This claim he can sell, and 
get back the equivalent of his capital, 
which he may afterwards employ pro¬ 
ductively. True ; but he does not get 
back his own capital, or anything which 
it has produced; that, and all its possi¬ 
ble returns, are extinguished : what he 
gets is the capital of some other per¬ 
son, which that person is willing to ex¬ 
change for his lien on the taxes. An¬ 
other capitalist substitutes himself for 
A as a mortgagee of the public, and A 
substitutes himself for the other capi¬ 
talist as the possessor of a fund em¬ 
ployed in production, or available for it. 
By this exchange the productive powers 
of the community are neither increased 
nor diminished. The breach in the 
capital of the country was made when 
the government spent A’s money: 
whereby a value of ten thousand pounds 
was withdrawn or withheld from pro¬ 
ductive employment, placed in the fund 
for unproductive consumption, and de¬ 
stroyed without equivalent. 


CHAPTER V. 

FUNDAMENTAL PROPOSITIONS RESPECTING CAPITAL. 


§ 1. If the preceding explanations 
have answered their purpose, they have 
given not only a sufficiently complete 
possession of the idea of Capital accord¬ 
ing to its definition, but a sufficient 
familiarity with it in the concrete, and 
amidst the obscurity with which the 
complication of individual circumstances 
surrounds it, to have prepared even the 
unpractised reader for certain elemen¬ 
tary propositions or theorems respecting 
capital, the full comprehension of which 
is already a considerable step out of 
darkness into light. 

The first of these propositions is, 
That industry is limited by capital. 
This is so obvious as to be taken for 


granted in many common forms of 
speech ; but to see a truth occasionally 
is one thing, to recognise it habitually, 
and admit no propositions inconsistent 
with it, is another. The axiom was 
until lately almost universally disre¬ 
garded by legislators and political 
writers; and doctrines irrcconcileable 
with it are still very commonly pro¬ 
fessed and inculcated. 

The following are common expres¬ 
sions, implying its truth. The act of 
directing industry to a particular em¬ 
ployment is described by the phrase 
“ applying capital ” to the employment. 
To employ industry on the land is to 
apply capital to the land. To employ 





40 BOOK I. CHAPTER V. § 1. 


labour in a manufacture is to invest 
capital in the manufacture. This im¬ 
plies that industry cannot be employed 
to any greater extent than there is 
capital to invest. The proposition, in¬ 
deed, must be assented to as soon as it 
is distinctly apprehended. The ex¬ 
pression “applying capital” is of 
course metaphorical: what is really 
applied is labour ; capital being an in¬ 
dispensable condition. Again, we often 
speak of the “productive powers of 
capital.” This expression is not lite¬ 
rally correct. The only productive 
powers are those of labour and natural 
agents ; or if any portion of capital 
can by a stretch of language be said to 
have a productive power of its own, it 
is only tools and machinery, which, like 
wind or water, may be said to co-ope¬ 
rate with labour. The food of labourers 
and the materials of production have 
no productive power ; but labour cannot 
exert its productive power unless pro¬ 
vided with them. There can be no 
more industry than is supplied with 
materials to work up and food to eat. 
Self-evident as the thing is, it is often 
forgotten that the people of a country 
are maintained and have their wants 
supplied, not by the produce of present 
labour, but of past. They consume 
what has been produced, not what is 
about to be produced. Now, of what 
has been produced, a part only is al¬ 
lotted to the support of productive 
labour ; and there will not and cannot 
be more of that labour than the por¬ 
tion so allotted (which is the capital 
of the country) can feed, and provide 
with the materials and instruments of 
production. 

Yet, in disregard of a fact so evident, 
it long continued to be believed that 
laws and governments, without creat¬ 
ing capital, could create industry. 
Not by making the people more labo¬ 
rious, or increasing the efficiency of 
their labour; these are objects to 
which the government can, in some 
degree, indirectly contribute. But 
without any increase in the skill or 
energy of the labourers, and without 
causing any persons to labour who had 
previously been maintained in idleness, 
it was still thought that the govern¬ 


ment, without providing additional 
funds, could create additional employ¬ 
ment. A government would, by pro¬ 
hibitory laws, put a stop to the impor¬ 
tation of some commodity; and when 
by this it had caused the commodity 
to be produced at home, it w r ould plume 
itself upon having enriched the country 
with a new branch of industry, would 
parade in statistical tables the amount 
of produce yielded and labour em¬ 
ployed in the production, and take 
credit for the whole of this as a gain 
to the country, obtained through the 
prohibitory law. Although this sort 
of political arithmetic has fallen a 
little into discredit in England, it still 
flourishes in the nations of Continental 
Europe. Had legislators been aware 
that industry is limited by capital, 
they would have seen that, the aggre¬ 
gate capital of the country not having 
been increased, any portion of it which 
they by their laws had caused to be 
embarked in the newly-acquired branch 
of industry must have been withdrawn 
or withheld from some other ; in which 
it gave, or would have given, employ¬ 
ment to probably about the same quan¬ 
tity of labour which it employs in its 
new occupation.* 

* An exception must be admitted when 
the industry created or upheld by the re¬ 
strictive law belongs to the class of what are 
called domestic manufactures. These being 
carried on by persons already fed—by la¬ 
bouring families, in the intervals of other 
employment—no transfer of capital to the 
occupation is necessary to its being under¬ 
taken, beyond the value of the materials and 
tools, which is often inconsiderable If, 
therefore, a protecting duty causes this occu¬ 
pation to be carried on, when it otherwise 
would not, there is in this case a real increase 
of the production of the country. 

In order to render our theoretical proposi¬ 
tion invulnerable, this peculiar case must be 
allowed for : but it does not touch the prac¬ 
tical doctrine of free trade. Domestic 
manufactures cannot, from the very nature 
of things, require protection, since the sub¬ 
sistence of the labourers being provided from 
other sources, the price of the product, how¬ 
ever much it may be reduced, is nearly all 
clear gain. If. therefore, the domestic pro¬ 
ducers retire from the competition, it is 
never from necessity, but because the pro¬ 
duct is not worth the labour it costs, in the 
opinion of the best judges, those who enjoy 
the one and undergo the other. They prefer 
the sacrifice of buying their clothing to the 
labour of making it. They will not continue 





FUNDAMENTAL PROPOSITIONS ON CAPITAL. 


§ 2. Because industry is limited by 
capital, we are not however to infer that 
it always reaches that limit. Capital 
may he temporarily unemployed, as in 
the case of unsold goods, or funds that 
have not yet found an investment; 
during this interval it does not set in 
motion any industry. Or there may 
not he as many labourers obtainable, 
as the capital would maintain and em¬ 
ploy. This has been known to occur 
in new colonies, where capital has 
sometimes perished uselessly for want 
of labour : the Swan River settlement 
(now called Western Australia), in the 
first years after its foundation, was an 
instance. There are many persons 
maintained from existing capital, who 
produce nothing, or who might produce 
much more than they do. If the 
labourers were reduced to lower wages, 
or induced to work more hours for the 
same wages, or if their families, who 
are already maintained from capital, 
were employed to a greater extent 
than they now are in adding to the 
produce, a given capital would afford 
employment to more industry. The 
unproductive consumption of produc¬ 
tive labourers, the whole of which is 
now supplied by capital, might cease, 
or be postponed until the produce 
came in; and additional productive 
labourers might be maintained with 
the amount. By such means society 
might obtain from its existing re¬ 
sources a greater quantity of produce: 
and to such means it has been driven, 
w r hen the sudden destruction of some 
large portion of its capital rendered 
the employment of the remainder with 
the greatest possible effect, a matter of 
paramount consideration for the time. 

Where industry has not come up to the 
limit imposed by capital, governments 
may, in various ways, for example by 
importing additional labourers, bring 
it nearer to that limit: as by the im¬ 
portation of Coolies and free Negroes 
into the West Indies. There is an¬ 
other way in which governments can 
create additional industry. They can 
create capital. They may lay on 

their labour unless society will give them 
more for it. than in their own opinion its 
product is worth. ( 


41 

taxes, and employ the amount produc¬ 
tively. They may do what is nearly 
equivalent; they may lay taxes on 
income or expenditure, and apply the 
proceeds towards paying off the public 
debts. Tbe fundholder, when paid off, 
would still desire to draw an income 
from his property, most of which there¬ 
fore would find its way into productive 
employment, while a great part of it 
would have been drawn from the fund 
for unproductive expenditure, since 
people do. not wholly pay their taxes 
from what they would have saved, but 
partly, if not chiefly, from what they 
would have spent. It may be added, 
that any increase in the productive 
power of capital (or, more properly 
speaking, of labour) by improvements 
in the arts of life, or otherwise, tends 
to increase the employment for labour; 
since, when there is a greater produce 
altogether, it is always probable that 
some portion of the increase will be 
saved and converted into capital; 
especially when the increased returns 
to productive industry hold out an 
additional temptation to the conver¬ 
sion of funds from an unproductive 
destination to a productive. 

§ 3. While, on the one hand, in¬ 
dustry is limited by capital, so on the 
other, every increase of capital gives, 
or is capable of giving, additional em¬ 
ployment to industry; and this with¬ 
out assignable limit. I do not mean 
to deny that the capital, or part of it, 
may be so employed as not to support 
labourers, being fixed in machinery, 
buildings, improvement of land, and the 
like. In any large increase of capital 
a considerable portion will generally be 
thus employed, and will only co-operate 
with labourers, not maintain them. 
What I do intend to assert is, that the 
portion which is destined to their 
maintenance, may (supposing no altera¬ 
tion in anything else) be indefinitely 
increased, without creating an impos¬ 
sibility of finding them employment: 
in other words, that if there are human 
beings capable of work, and food to 
feed them, they may always be em¬ 
ployed in producing something. This 
proposition requires to be somewhat 




42 BOOK I. CHAPTER V. § 3. 


dwelt upon, being one of those which 
it is exceedingly easy to assent to 
when presented in general terms, but 
somewhat difficult to keep fast hold of, 
in the crowd and confusion of the 
actual facts of society. It is also very 
much opposed to common doctrines. 
There is not an opinion more general 
among mankind than this, that the 
unproductive expenditure of the rich is 
necessary to the emplojmient of the 
poor. Before Adam Smith, the doc¬ 
trine had hardly been questioned; and 
even since his time, authors of the 
highest name and of great merit* have 
contended, that if consumers were to 
save and convert into capital more 
than a limited portion of their income, 
and were not to devote to unproductive 
consumption an amount of means bear¬ 
ing a certain ratio to the capital of the 
country, the extra accumulation would 
be merely so much waste, since there 
would be no market for the commo¬ 
dities which the capital so created 
would produce. I conceive this to be 
one of the many errors arising in poli¬ 
tical economy, from the practice of not 
beginning with the examination of 
simple cases, but rushing at once into 
the complexity of concrete phenomena. 

Every one can see that if a benevo¬ 
lent government possessed all the food, 
and all the implements and materials, 
of the community, it could exact pro¬ 
ductive labour from all capable of it, 
to whom it allowed a share in the food, 
and could be in no danger of wanting 
a field for the employment of this pro¬ 
ductive labour, since as long as there 
was a single want unsaturated (which 
material objects could supply), of any 
one individual, the labour of the com¬ 
munity could be turned to the produc¬ 
tion of something capable of satisfying 
that want. Now, the individual pos¬ 
sessors of capital, when they add to it 
by fresh accumulations, are doing pre¬ 
cisely the same thing which we sup¬ 
pose to be done by a benevolent govern¬ 
ment. As it is allowable to put any 
case by way of hypothesis, let us ima¬ 
gine the most extreme case conceiv¬ 
able. Suppose that every capitalist 

* For example, Mr.Malthus, Dr. Chalmers, 
M. de Sismonai. 


came to be of opinion that not being 
more meritorious than a well-conducted 
labourer, he ought not to fare better; and 
accordingly laid by, from conscientious 
motives, the surplus of his profits; or 
suppose this abstinence not sponta¬ 
neous, but imposed by law or opinion 
upon all capitalists, and upon land- 
owners likewise. Unproductive ex¬ 
penditure is now reduced to its lowest 
limit: and it is asked, how is the in¬ 
creased capital to find employment? 
Who is to buy the goods which it will 
produce ? There are no longer cus¬ 
tomers even for those which were pro¬ 
duced before. The goods, therefore, 
(it is said) will remain unsold; they 
will perish in the warehouses; until 
capital is brought down to what it was 
originally, or rather to as much less, 
as the demand of the consumers has 
lessened. But this is seeing only one- 
half of the matter. In the case sup¬ 
posed, there would no longer be any 
demand for luxuries, on the part 
of capitalists and landowners. But 
when these classes turn their in¬ 
come into capital, they do not thereby 
annihilate their power of consumption ; 
they do but transfer it from themselves 
to the labourers to whom they give 
employment. Now, there are two pos¬ 
sible suppositions in regard to the 
labourers ; either there is, or there is 
not, an increase of their numbers, pro¬ 
portional to the increase of capital. If 
there is, the case offers no difficulty. 
The production of necessaries for the 
new population, takes the place of the 
production of luxuries for a portion of 
the old, and supplies exactly the 
amount of employment which has been 
lost. But suppose that there is no in¬ 
crease of population. The whole of 
what was previously expended in 
luxuries, by capitalists and landlords, 
is distributed among the existing 
labourers, in the form of additional 
wages. We will assume them to be 
already sufficiently supplied with neces- 
saries. What follows ? That the 
labourers become consumers of luxu¬ 
ries ; and the capital previously em¬ 
ployed in the production of luxuries, is 
still able to employ itself in the same 
manner: the difierence being, that the 





FUNDAMENTAL PROPOSITIONS ON CAPITAL. 


luxuries are shared among the com¬ 
munity generally, instead of being con¬ 
fined to a few. The increased accumu¬ 
lation and increased production might, 
rigorously speaking, continue, until 
every labourer had every indulgence of 
wealth, consistent with continuing to 
work ; supposing that the power of 
their labour were physically sufficient to 
produce all this amount of indulgences 
for their whole number. Thus the 
limit of wealth is never deficiency of 
consumers, but of producers and pro¬ 
ductive power. Every addition to 
capital gives to labour either additional 
employment, or additional remunera¬ 
tion ; enriches either the country, or 
the labouring class. If it finds addi¬ 
tional hands to set to work, it increases 
the aggregate produce: if only the 
same hands, it gives them a larger 
share of it; and perhaps even in this 
case, by stimulating them to greater 
exertion, augments the produce itself. 

§ 4. A second fundamental theorem 
respecting Capital, relates to the source 
from which it is derived. It is the re¬ 
sult of saving. The evidence of this 
lies abundantly in what has been al¬ 
ready said on the subject. But the 
proposition needs some further illus¬ 
tration. 

If all persons were to expend in per¬ 
sonal indu’gences all that they produce, 
and all the income they receive from 
what is produced by others, capital 
could not increase. All capital, with a 
trifling exception, was originally the 
result of saving. I say, with a trifling 
exception ; because a person who la¬ 
bours on his own account, may spend 
on his own account all he produces, 
without lecoming destitute ; and the 
provision of necessaries on which he 
subsists until he has reaped his harvest, 
or sold his commodity, though a real 
capital, cannot be said to have been 
saved, since it is all used for the sup¬ 
ply of his own wants, and perhaps as 
speedily as if it had been consumed in 
idleness. We may imagine a number 
of individuals or families settled on as 
many separate pieces of land, each 
living on what their own labour pro¬ 
duces, and consuming the whole pro- 


43 

duce. But even these must save (that 
is, spare from their personal consump¬ 
tion) as much as is necessary for seed. 
Some saving, therefore, there must have 
been, even in this simplest of all states 
of economical relations; people inust 
have produced more than they used, or 
used less than they produced. Still 
more must they do so before they can 
empL >y other labourers, or increase their 
production beyond what can be accom¬ 
plished by the work of their own hands. 
All that anyone employs in supporting 
and carrying on any other labour than 
his own, must have been originally 
brought together by saving; somebody 
must have produced it and forborne to 
consume it. We may say, therefore, 
without material inaccuracy, that all 
capital, and especially all addition to 
capita], are the result of saving. 

In a rude and violent state of society, 
it continually happens that the person 
who has capital is not the very person 
who has saved it, but some one who, 
being stronger, or belonging to a more 
powerful community, has possessed 
himself of it by plunder. And even in 
a state of things in which property was 
protected, the increase of capital has 
usually been, for a long time, mainly 
derived from privations which, though 
essentially the same with saving, are 
not generally called by that name, be¬ 
cause not voluntary. The actual pro¬ 
ducers have been slaves, compelled to 
produce as much as force could extort 
from them, and to consume as little as 
the self-interest or the usually very 
slender humanity of their taskmasters 
would permit. This kind of compul¬ 
sory saving, however, would not have 
caused any increase of capital, unless 
a part of the amount had been saved 
over again, voluntarily, by the master. 
If all that he made his slaves produce 
and forbear to consume, had been con¬ 
sumed by him on personal indulgences, 
he would not have increased his capital, 
nor been enabled to maintain an in¬ 
creasing number of slaves. To main¬ 
tain any slaves at all, implied a pre¬ 
vious saving ; a stock, at least of food, 
provided in advance. This saving may 
not, however, have been made by any 
self-imposed privation of the master; 



BOOK I. CHAPTER V. § 5. 


44 

Put more probably by that of the slaves 
themselves while free; the rapine or 
war, which deprived them of their per¬ 
sonal liberty, having transferred also 
their accumulations to the conqueror. 

There are other cases in which the 
term saving, with the associations usu¬ 
ally belonging to it, does not exactly 
lit the operation by which capital is 
increased. If it were said, for instance, 
that the only way to accelerate the in¬ 
crease of capital is by increase of saving, 
the idea would probably be suggested 
of greater abstinence, and increased 
privation. But it is obvious that what¬ 
ever increases the productive power of 
labour, creates an additional fund to 
make savings from, and enables capital 
to be enlarged not only without addi¬ 
tional privation, but concurrently with 
an increase of personal consumption. 
.Nevertheless, there is here an increase 
of saving, in the scientific sense. 
Though there is more consumed, there 
is also more spared. There is a greater 
excess of production over consumption. 
It is consistent with correctness to call 
this a greater saving. Though the 
term is not unobjectionable, there is no 
other which is not liable to as great 
objections. To consume less than is 
produced, is saving; and that is the 
process by which capital is increased ; 
not necessarily by consuming less, ab¬ 
solutely. We must not allow ourselves 
to be so much the slaves of words, as 
to be unable to use the word saving in 
this sense, without being in danger of 
forgetting that to increase capital there 
is another way besides consuming less, 
namely, to produce more. 

§ 5. A third fundamental theorem 
respecting Capital, closely connected 
with the one last discussed, is, that 
although saved, and the result of 
saving, it is nevertheless consumed. 
The word saving does not imply that 
what is saved is not consumed, nor 
even necessarily that its consumption 
is deferred ; but only that, if consumed 
immediately, it is not consumed by the 
erson who saves it. If merely laid 
y for future use, it is said to be 
hoarded; and while hoarded, is not 
consumed at all. But if employed as 


capital, it is all consumed ; though not 
by the capitalist. Part is exchanged 
for tools or machinery, which are worn 
out by use : part for seed or materials, 
which are destroyed as such by being 
sown or wrought up, and destroyed al¬ 
together by the consumption of the 
ultimate product. The remainder is 
paid in wages to productive labourers, 
who consume it for their daily wants ; 
or if they in their turn save any part, this 
also is not, generally speaking, hoarded, 
but (through savings banks, benefit 
clubs, or some other channel) re-em¬ 
ployed as capital, and consumed. 

The principle now stated is a strong 
example of the necessity of attention to 
the most elementary truths of our sub¬ 
ject : for it is one of the most elemen¬ 
tary of them all, and yet no one who 
has not bestowed some thought on the 
matter is habitually aware of it, and 
most are not even willing to admit it 
when first stated. To the vulgar, it is 
not at all apparent that what is saved 
is consumed. To them, every one who 
saves, appears in the light of a person 
who hoards ; they may think such con¬ 
duct permissible, or even laudable, when 
it is to provide for a family, and the 
like ; but they have no conception of it 
as doing good to other people: saving 
is to them another word for keeping a 
thing to oneself; while spending ap¬ 
pears to them to be distributing it 
among others. The person who ex¬ 
pends his fortune in unproductive con¬ 
sumption, is looked upon as diffusing 
benefits all around; and is an object 
of so much favour, that some portion 
of the same popularity attaches even 
to him who spends what does not be¬ 
long to him ; who not only destroys his 
own capital, if he ever had any, but, 
under pretence of borrowing, and on 
promise of repayment, possesses him¬ 
self of capital belonging to others, and 
destroys that likewise. 

This popular error comes from at¬ 
tending to a small portion only of the 
consequences that flow from the saving 
or the spending; all the effects of 
either which are out of sight, being out 
of mind. The eye follows what is saved, 
int n imaginary strong box, and there 
loses sight of it; what is spent, it f'ol* 



45 


FUNDAMENTAL PROPOSITIONS ON CAPITAL. 


lows into the hands of tradespeople and 
dependents; but without reaching the 
ultimate destination in either case. 
Saving (for productive investment), and 
spending, coincide very closely in the 
first stage of their operations. The 
effects of both begin with consumption; 
with the destruction of a certain portion 
of wealth ; only the things consumed, 
and the persons consuming, are different. 
There is, in the one case, a wearing out 
of tools, a destruction of material, and 
a quantity of food and clothing supplied 
to labourers, which they destroy by use; 
in the other case, there is a consump¬ 
tion, that is to say, a destruction, of 
wines, equipages, and furniture. Thus 
far, the consequence to the national 
wealth has been much the same ; an 
equivalent quantity of it has been de¬ 
stroyed in both cases. But in the 
spending, this first stage is also the 
linal stage ; that particular amount of 
the produce of labour has disappeared, 
and there is nothing left; while, on the 
contrary, the saving person, during the 
whole time that the destruction was 
going on, has had labourers at work 
repairing it; who are ultimately found 
to have replaced, with an increase, the 
equivalent of what has been consumed. 
And as this operation admits of being 
repeated indefinitely without any fresh 
act of saving, a saving once made be¬ 
comes a fund to maintain a correspond¬ 
ing number of labourers in perpetuity, 
reproducing annually their own mainte¬ 
nance with a profit. 

It is the intervention of money which 
obscures, to an unpractised apprehen¬ 
sion, the true character of these pheno¬ 
mena. Almost all expenditure being 
carried on by means of money, the 
money comes to be looked upon as the 
main feature in the transaction ; and 
since that does not perish, but only 
changes hands, people overlook the 
destruction which takes place in the 
case of unproductive expenditure. The 
money being merely transferred, they 
think the wealth also has only been 
handed over from the spendthrift to 
other people. But this is simply con¬ 
founding money with wealth. The 
wealth which has been destroyed was 
not the money, but the wines, equipages, 


and furniture which the money pur¬ 
chased ; and these having been de¬ 
stroyed without return, society collec¬ 
tively is poorer by the amount. It may 
be said, perhaps, that wines, equipages, 
and furniture, are not subsistence, tools, 
and materials, and could not in any 
case have been applied to the support 
of labour; that they are adapted for no 
other than unproductive consumption, 
and that the detriment to the wealth 
of the community was when they were 
produced, not when they were con¬ 
sumed. I am willing to allow this, as 
far as is necessary for the argument, 
and the remark would be very perti¬ 
nent if these expensive luxuries were 
drawn from an existing stock, never to 
be replenished. But since, on the con¬ 
trary, they continue to be produced as 
long as there are consumers for them, 
and are produced in increased quantity 
to meet an increased demand; the 
choice made by a consumer to expend 
five thousand a year in luxuries, keeps 
a corresponding number of labourers 
employed from year to year in pro¬ 
ducing things which can be of no use 
to production; their services being lost 
so far as regards the increase of the 
national wealth, and the tools, mate¬ 
rials, and food which they annually 
consume being so much subtracted 
from the general stock of the commu¬ 
nity applicable to productive purposes. 
In proportion as any class is improvi¬ 
dent or luxurious, the industry of the 
country takes the direction of producing 
luxuries for their use ; while not only 
the employment for productive labourers 
is diminished, hut the subsistence and 
instruments which are the means of 
such employment do actually exist in 
smaller quantity. 

Saving, in short, enriches, and spend¬ 
ing impoverishes, the community along 
with the individual; which is but say¬ 
ing in other words, that society at large 
is richer by what it expends in main¬ 
taining and aiding productive labour, 
but poorer by what it consumes in its 
enjoyments.* 

* It is worth while to direct attention to 
several circumstances which to a certain ex¬ 
tent diminish the detriment caused to the 
general wealth by the prodigality ot' m- 



46 BOOK I. CHAPTER V. § 6. 


§ 6. To return to our fundamental 
theorem. Everything which is pro¬ 
duced is consumed ; both what is saved 
and what is said to be spent; and the 
former quite as rapidly as the latter. 
All the ordinary forms of language tend 
to disguise this. When people talk of 
the ancient wealth of a country, of 
riches inherited from ancestors, and 
similar expressions, the idea suggested 
is, that the riches so transmitted were 
produced long ago, at the time when 
they are said to have been first ac¬ 
quired, and that no portion of the 
capital of the country was produced 
this year, except as much as may have 
been this year added to the total 
amount. The fact is far otherwise. 
The greater part, in value, of the 
wealth now existing in England has 
been produced by human hands within 
the last twelve months. A very small 
proportion indeed of that large aggre¬ 
gate was in existence ten years ago ; 
—of the present productive capital of 
the country scarcely any part, except 
farm-houses and manufactories, and a 

dividuals, or raise up a compensation, more 
or less ample, as a consequence of the detri¬ 
ment itself. One of these is that spend¬ 
thrifts do not usually succeed in consuming 
all they spend. Their habitual carelessness 
as to expenditure causes them to be cheated 
and robbed on all quarters, often by persons 
of frugal habits. Large accumulations are 
continually made by the agents, stewards, 
and even domestic servants, of improvident 
persons of fortune; and they pay much 
higher prices for all purchases than people 
of careful habits, which accounts for their 
being popular as customers. They are, 
therefore, actually not able to get into their 
possession and destroy a quantity of wealth 
by any means equivalent to the fortune which 
they dissipate. Much of it is merely trans¬ 
ferred to others, by whom a part may be 
saved. Another thing to be observed is, 
that the prodigality of some may reduce 
others to a forced economy. Suppose a sud¬ 
den demand for some article of luxury, 
caused by the caprice of a prodigal, which 
not having been calculated on beforehand, 
there has been no increase of the usual 
supply. The price will rise; and may rise 
beyond the means or the inclinations of some 
of the habitual consumers, who may in con¬ 
sequence forego their accustomed indulgence, 
and save the amount. If they do not, but 
continue to spend as great a value as before 
on the commodity, the dealers in it obtain, 
for only the same quantity of the article, a 
return increased by the whole of what the 
Spendthrift has paid; and thus the amount 


few ships and machines; and even 
these would not in most cases have 
survived so long, if fresh labour had 
not been employed within that period 
in putting them into repair. The land 
subsists, and the land is almost the 
only thing that subsists. Everything 
which is produced perishes, and most 
things very quickly. Most kinds of 
capital are not fitted by their nature to 
be long preserved. There are a few, 
and but a few productions, capable of 
a very prolonged existence. West¬ 
minster Abbey has lasted many cen¬ 
turies, with occasional repairs ; some 
Grecian sculptures have existed above 
two thousand years; the Pyramids 
perhaps double or treble that time. 
But these were objects devoted to un¬ 
productive use. If we except bridges 
and aqueducts (to which may in some 
countries be added tanks and embank¬ 
ments), there are few instances of any 
edifice applied to industrial purposes 
which has been of great duration; 
such buildings do not hold out against 
wear and tear, nor is it good economy 

which he loses is transferred bodily to them, 
and may be added to their capital: his in¬ 
creased personal consumption being made up 
by the privations of the other purchasers, 
who have obtained less than usual of their 
accustomed gratification for the same equiva¬ 
lent. On the other hand, a counter-process 
must be going on somewhere, since the 
prodigal must have diminished his purchases 
in some other quarter to balance the aug¬ 
mentation in this ; he has perhaps called in 
funds employed in sustaining productive la¬ 
bour, and the dealers in subsistence and in 
the instruments of production have had com¬ 
modities left on their hands, or have re¬ 
ceived, for the usual amount of commodities, 
a less than usual reiurn. But such losses of 
income or capital, by industrious persons, 
except when of extraordinary amount, are 
generally made up by increased pinching and 
privation; so that the capital of tit® com¬ 
munity may not be, on the whole, impaired, 
and the prodigal may have had hi3 self- 
indulgence at the expense not of the perma¬ 
nent resources, but of the temporary plea¬ 
sures and comforts of others. For in every 
case the community are poorer by what any 
one spends, unless others are in consequence 
led to curtail their spending. There are yet 
other and more recondite ways in which the 
profusion of some may bring about its com¬ 
pensation in the extra savings of others; but 
these can only be considered in that part 
of the Fourth Book, which treats of the 
limiting principle to the accumulation of 
capital. 




FUNDAMENTAL PROPOSITIONS ON CAPITAL. 47 


to construct them of the solidity 
necessary for permanency. Capital 
is kept in existence from age to age 
not by preservation, but by perpetual 
reproduction: every part of it is used 
and destroyed, generally very soon after 
it is produced, but those who consume 
it are employed meanwhile in produc¬ 
ing more. The growth of capital is 
similar to the growth of population. 
Every individual who is born, dies, but 
in each year the number bom exceeds 
the number who die: the population, 
therefore, always increases, though not 
one person of those composing it was 
alive until a very recent date. 

§ 7. This perpetual consumption 
and reproduction of capital affords the 
explanation of what has so often excited 
wonder, the great rapidity with which 
countries recover from a state of devas¬ 
tation ; the disappearance, in a short 
time, of all traces of the mischiefs done 
by earthquakes, floods, hurricanes, and 
the ravages of war. An enemy lays 
waste a country by fire and sword, and 
destroys or carries away nearly all the 
moveable wealth existing in it: all the 
inhabitants are ruined, and yet in a 
few years after, everything is much as 
it w r as before. This vis medicatrix 
naturce has been a subject of sterile 
astonishment, or has been cited to ex¬ 
emplify the wonderful strength of the 
principle of saving, which can repair 
such enormous losses in so brief an in¬ 
terval. There is nothing at all won¬ 
derful in the matter. What the enemy 
have destroyed, would have been de¬ 
stroyed in a little time by the inhabit¬ 
ants themselves: the wealth which 
they so rapidly reproduce, would have 
needed to be reproduced and would 
have been reproduced in any case, and 
probably in as short a time. Nothing 
is changed, except that during the re¬ 
production they have not now the ad¬ 
vantage of consuming what had been 
produced previously. The possibility 
of a rapid repair of their disasters, 
mainly depends on whether the country 
has been depopulated. If its effective 
population have not been extirpated at 
the time, and are not starved after¬ 
wards ; then, with the same skill and 


knowledge which they had before, with 
their land and its permanent improve¬ 
ments undestroyed, and the more dur¬ 
able buildings probably unimpaired, or 
only partially injured, they have nearly 
all the requisites for their former 
amount of production. If there is as 
much of food left to them, or of valu¬ 
ables to buy food, as enables them by 
any amount of privation to remain 
alive and in working condition, they 
will in a short time have raised as 
great a produce, and acquired collec¬ 
tively as great wealth and as great a 
capital, as before; by the mere conti¬ 
nuance of that ordinary amount of ex¬ 
ertion which they are accustomed to 
employ in their occupations. Nor does 
this evince any strength in the princi¬ 
ple of saving, in the popular sense of 
the term, since what takes place is not 
intentional abstinence, but involuntary 
privation. 

Yet so fatal is the habit of thinking 
through the medium of only one set of 
technical phrases, and so little reason 
have studious men to value themselves 
on being exempt from the very same 
mental infirmities which beset the vul¬ 
gar, that this simple explanation was 
never given (so far as I am aware) by 
any political economist before Dr. 
Chalmers; a writer many of whose 
opinions I think erroneous, but who has 
always the merit of studying phenomena 
at first hand, and expressing them in a 
language of his own, which often un¬ 
covers aspects of the truth that the re¬ 
ceived phraseologies only tend to hide. 

§ 8. The same author carries out 
this train of thought to some important 
conclusions on another closely connected 
subject, that of government loans for 
war purposes or other unproductive ex¬ 
penditure. These loans, being drawn 
from capital (in lieu of taxes, which 
would generally have been paid from 
income, and made up in part or alto¬ 
gether by increased economy) must, 
according to the principles we have 
laid down, tend to impoverish the 
country : yet the years in which ex¬ 
penditure of this sort has been on the 
greatest scale, have often been years of 
great apparent prosperity : the wealth 




48 BOOK I. CHAPTER V. § 8. 


and resources of the country, instead of 
diminishing, have given every sign of 
rapid increase during the process, and 
of greatly expanded dimensions after 
its close. This was confessedly the 
case with Great Britain during the last 
long Continental war; and it would 
take some space to enumerate all the 
unfounded theories in political econom}'-, 
to which that fact gave rise, and to 
which it secured temporary credence ; 
almost all tending to exalt unproduc¬ 
tive expenditure, at the expense of pro¬ 
ductive. Without entering into all the 
causes which operated, and which 
commonly do operate, to prevent these 
extraordinary drafts on the productive 
resources of a country from being so 
much felt as it might seem reasonable 
to expect, we will suppose the most 
unfavourable case possible: that the 
whole amount borrowed and destroyed 
by the government, was abstracted by 
the lender from a productive employ¬ 
ment in which it had actually been in¬ 
vested. The capital, therefore, of the 
country, is this year diminished by so 
much. But unless the amount ab¬ 
stracted is something enormous, there 
is no reason in the nature of the case 
why next year the national capital 
should not be as great as ever. The 
loan cannot have been taken from that 
portion of the capital of the country 
which consists of tools, machinery, and 
buildings. It must have been wholly 
drawn from the portion employed in 
paying labourers: and the labourers 
will suffer accordingly. But if none of 
them are starved ; if their wages can 
bear such an amount of reduction, or 
if charity interposes between them and 
absolute destitution, there is no reason 
that their labour should produce less 
in the next year than in the year 
before. If they produce as much as 
usual, having been paid less by so 
many millions sterling, these millions 
are gained by their employers. The 
breach made in the capital of the 
country is thus instantly repaired, but 
repaired by the privations and often 
the real misery of the labouring class. 
Here is ample reason why such periods, 
even in the most unfavourable circum¬ 
stances, may easily be times of great 


gain to those whose prosperity usually 
passes, in the estimation of society, lor 
national prosperity.* 

This leads to the vexed question to 
which Dr. Chalmers has very particu¬ 
larly adverted ; whether the funds re¬ 
quired by a government for extraor¬ 
dinary unproductive expenditure, are 
best raised by loans, the interest only 
being provided by taxes, or whether 
taxes shoul 1 be at once laid on to the 
whole amount; which is called in the 
financial vocabulary, raising the whole 
of the supplies within the year. Dr. 
Chalmers is strongly for the latter 
method. He says, the common notion 
is that in calling for the whole amount 
in one year, you require what is either 
impossible, or very inconvenient; that 
the people cannot, without great hard¬ 
ship, pay the whole at once out of their 

* On the other hand, it must be remem¬ 
bered that war abstracts from produclive 
employment not only capital, but likewise 
labourers, that the funds withdrawn from 
the remuneration of productive labourers 
are partly employed in paying the same or 
oilier individuals for unproductive labour ; 
and that by this portion of its effects, war 
expenditure acts in precisely the opposite 
manner to that which Dr. Chalmers points 
out, and, so far as it goes, directly counter¬ 
acts the effects described in the text. So far 
as labourers are taken from production to 
man the army and navy, the labouring 
classes are nut damaged, the capitalists are 
not benefited, and the general produce of 
the country is diminished by war expendi¬ 
ture. Accordingly, Dr. Chalmers’s doctrine, 
though true of this country, is wholly inap¬ 
plicable to countries differently circum¬ 
stanced ; to France, for example, during the' 
Napoleon wars. At that period tne draught 
on the labouring population of France, for a 
long series of years, was enormous, while 
the funds which supported the war were 
mostly supplied by contributions levied on 
the countries overrun by the French arms, 
a very small proportion alone consisting of 
French capital. In France, accordingly, the 
wages of labour did not fall, but rose ; the 
employers of labour were not benefited, but 
injured; while the wealth of the country was 
impaired by the suspension or total loss of so 
vast an amount of its productive labour. In 
England all this was reversed. England 
employed comparatively few additional 
soldiers and sailors of her own, while she 
diverted hundreds of millions of capital from 
productive employment, to supply munitions 
of war and support armies for her Conti¬ 
nental allies. Consequently, as shown in the 
text, her labourers suffered, her capitalists 
prospered, and her permanent productive 
resources did not fall off. 





FUNDAMENTAL PROPOSITIONS ON CAPITAL. 


yearly income; and that it is much 
better to require of them a small pay¬ 
ment every year in the shape of interest, 
than so great a sacrifice once for all. 
To which his answer is, that the sacri¬ 
fice is made equally in either case. 
Whatever is spent, cannot but be 
drawn from yearly income. The whole 
and every part of the wealth produced 
in the country, forms, or helps to form, 
the yearly income of somebody. The 
privation which it is supposed must 
result from taking the amount in the 
shape of taxes, is not avoided by taking 
it in a loan. The suffering is not 
averted, but only thrown upon the 
labouring classes, the least able, and 
who least ought, to bear it: while all 
the inconveniences, physical, moral, 
and political, produced by maintaining 
taxes for the perpetual payment of the 
interest, are incurred in pure loss. 
Whenever capital is withdrawn from 
production, or from the fund destined 
for production, to be lent to the State 
and expended un productively, that 
whole sum is withheld from the 
labouring classes: the loan, therefore, 
is in truth paid off the same year ; the 
whole of the sacrifice necessary for 
paying it off is actually made : only it 
is paid to the wrong persons, and 
therefore does not extinguish the claim; 
and paid by the very worst of taxes, a 
tax exclusively on the labouring class. 
And after having, in this most painful 
and unjust way, gone through the 
whole effort necessary for extinguishing 
the debt, the country remains charged 
with it, and with the payment of its 
interest in perpetuity. 

These views appear to me strictly 
just, in so far as the value absorbed in 
loans would otherwise have been em¬ 
ployed in productive industry within 
the country. The practical state of the 
case, however, seldom exactly corre¬ 
sponds with this supposition. The 
loans of the less wealthy countries are 
made chiefly with foreign capital, which 
would not, pei'haps, have been brought 
in to be invested on any less security 
than that of the government: while 
those of rich and prosperous countries 
are generally made, not with funds 
withdrawn from productive employ¬ 
ee. 


ment, but with the new accumulations 
constantly making from income, and 
often with a part of them which, if not 
so taken, would have migrated to colo¬ 
nies, or sought other investments 
abroad. In these cases (which will 
be more particularly examined here¬ 
after*), the sum wanted may be ob¬ 
tained by loan without detriment to the 
labourers, or derangement of the na¬ 
tional industry, and even perhaps with 
advantage to both, in comparison with 
raising the amount by taxation ; since 
taxes, especially when heavy, are al 
most always partly paid at the expense 
of what would otherwise have been 
saved and added to capital. Besides, 
in a country which makes so great 
yearly additions to its wealth that a 
part can be taken and expended un- 
productively without diminishing capi¬ 
tal, or even preventing a considerable 
increase, it is evident that even if the 
whole of what is so taken would have 
become capital, and obtained employ¬ 
ment in the country, the effect on the 
labouring classes is far less prejudicial, 
and the case against the loan system 
much less strong, than in the case first 
supposed. This brief anticipation of a 
discussion which will find its proper 
place elsewhere, appeared necessary to 
prevent false inferences from the pre¬ 
mises previously laid down. 

§ 9. We now pass to a fourth fun¬ 
damental theorem respecting Capital, 
which is, perhaps, oftener overlooked 
or misconceived than even any of the 
foregoing. What supports and employs 
productive labour, is the capital ex¬ 
pended in setting it to work, and not 
the demand of purchasers for the pro¬ 
duce of the labour when completed; 
Demand for commodities is not demand 
for labour. The demand for commodi¬ 
ties determines in what particular 
branch of production the labour and 
capital shall be employed; it deter¬ 
mines the direction of the labour; but 
not the more or less of the labour itself, 
or of the maintenance or payment of 
the labour. These depend on the 
amount of the capital, or other funds 

* Infra, book iv. chaps, iv. v. 

E 




50 BOOK I. CHAPTER V. § 9. 


directly devoted to the sustenance and 
remuneration of labour. 

Suppose, for instance, that there is 
a demand for velvet; a fund ready to 
he laid out in buying velvet, but no 
capital to establish the manufacture. 
It is of no consequence how great the 
demand may be; unless capital is at¬ 
tracted into the occupation, there will 
be no velvet made, and consequently 
none bought; unless, indeed, the desire 
of the intending purchaser for it is so 
strong, that he employs part of the 
price he would have paid for it, in 
making advances to work-people, that 
they may employ themselves in making 
velvet; that is, unless he converts part 
of his income into capital, and invests 
that capital in the manufacture. Let 
us now reverse the hypothesis, and sup¬ 
pose that there is plenty of capital 
ready for making velvet, but no de¬ 
mand. Velvet will not be made; but 
there is no particular preference on the 
part of capital for making velvet. Ma¬ 
nufacturers and their labourers do not 
produce for the pleasure of their cus¬ 
tomers, but for the supply of their own 
wants, and having still the capital and 
the labour which are the essentials of 
production, they can either produce 
something else which is in demand, or 
if there be no other demand, they 
themselves have one, and can produce 
the things which they want for their 
own consumption. So that the employ¬ 
ment afforded to labour does not depend 
on the purchasers, but on the capital. 
I am, of course, not taking into con¬ 
sideration the effects of a sudden 
change. If the demand ceases unex¬ 
pectedly, after the commodity to supply 
it is already produced, this introduces 
a different element into the question: 
the capital has actually been consumed 
in producing something which nobody 
wants or uses, and it has therefore 
perished, and the employment which 
it gave to labour is at an end, not be¬ 
cause there is no longer a demand, but 
because there is no longer a capital. 
This case therefore does not test the 
principle. The proper test is, to sup¬ 
pose that the change is gradual and 
foreseen, and is attended with no waste 
of capital, the manufacture being dis¬ 


continued by merely not replacing tfi3 
machinery as it wears out, and not re¬ 
investing the money as it comes in from 
the sale of the produce. The capital 
is thus ready for a new employment, in 
which it will maintain as much labour 
as before. The manufacturer and his 
wmrk-people lose the benefit of the skill 
and knowdedge which they had ac¬ 
quired in the particular business, and 
which can only be partially of use to 
them in any other; and that is the 
amount of loss to the community by the 
change. But the labourers can still 
work, and the capital which previously 
employed them will, either in the same 
hands, or by being lent to others, 
employ either those labourers or an 
equivalent number in some other occu¬ 
pation. 

This theorem, that to purchase pro¬ 
duce is not to employ labour; that the 
demand for labour is constituted by the 
w r ages which precede the production, 
and not by the demand which may 
exist for the commodities resulting from 
the production; is a proposition which 
greatly needs all the illustration it can 
receive. It is, to common apprehen¬ 
sion, a paradox ; and even among poli¬ 
tical economists of reputation, I can 
hardly point to any, except Mr. Ricardo 
and M. Sfiy, who have kept it con¬ 
stantly and steadily in view. Almost 
all others occasionally express them¬ 
selves as if a person who buys com¬ 
modities, the produce of labour, was an 
employer of labour, and created a de¬ 
mand for it as really, and in the same 
sense, as if he bought the labour itself 
directly, by the payment of v r ages. It 
is no wonder that political economy 
advances slowly, when such a question 
as this still remains open at its very 
threshold. I apprehend, that if by de¬ 
mand for labour be meant the demand 
by which wages are raised, or the num¬ 
ber of labourers in employment in¬ 
creased, demand for commodities does 
not constitute demand for labour. I 
conceive that a person who buys com¬ 
modities and consumes them himself, 
does no good to the labouring classes; 
and that it is only by what he abstains 
from consuming, and expends in direct 
payments to labourers in exchange for 





FUNDAMENTAL PROPOSITIONS ON CAPITAL. 


labour, that, lie benefits the labouring 
classes, or adds anything to the amount 
of their employment. 

For the better illustration of the 
principle, let us put the following case. 
A consumer may expend his income 
either in buying services or commodi¬ 
ties. He may employ part of it in 
hiring journeymen bricklayers to build 
a house, or excavators to dig artificial 
lakes, or labourers to make plantations 
and lay out pleasure-grounds; or, in¬ 
stead of this, he may expend the same 
value in buying velvet and lace. The 
question is, whether the difference be¬ 
tween these two modes of expending 
his income affects the interest of the 
labouring classes. It is plain that in 
the first of the two cases he employs 
labourers, who will be out of employ¬ 
ment, or at least out of that employ¬ 
ment, in the opposite case. But those 
from whom I differ say that this is of 
no consequence, because in buying 
velvet and lace he equally employs 
labourers, namely, those who make the 
velvet and lace. I contend, however, 
that in this last case he does not em¬ 
ploy labourers; but merely decides in 
what kind of work some other person 
shall employ them. The consumer 
does not with his own funds pay to the 
weavers and lacemakers their day’s 
wages. He buys the finished com¬ 
modity, which has been produced by 
labour and capital, the labour not being 

E aid nor the capital furnished by him, 
ut by the manufacturer. Suppose 
that he had been in the habit of ex¬ 
pending this portion of his income in 
hiring journeymen bricklayers, who 
laid out the amount of their wages in 
food and clothing, which were also pro¬ 
duced by labour and capital. He, 
however, determines to prefer velvet, 
for which he thus creates an extra de¬ 
mand. This demand cannot be satis¬ 
fied without an extra supply, nor can 
the supply be produced without an ex¬ 
tra capital: where, then, is the capital 
to come from? There is nothing in the 
consumer’s change of purpose which 
makes the capital of the country 
greater than it otherwise was. It ap¬ 
pears, then, that the increased demand 
lor velvet could not for the present be 


supplied, were it not that the very cir¬ 
cumstance which gave rise to it has set 
at liberty a capital of the exact amount 
required. The very sum which the 
consumer now employs in buying vel¬ 
vet, formerly passed into the hands of 
journeymen bricklayers, who expended 
it in food and necessaries, which they 
now either go without, or squeeze bv 
their competition, from the shares of 
other labourers. The labour and ca¬ 
pital, therefore, which formerly pro¬ 
duced necessaries for the use of these 
bricklayers, are deprived of their mar¬ 
ket, and must look out for other em¬ 
ployment ; anil they find it in making 
velvet for the new demand. I do not 
mean that the very same labour and 
capital which produced the necessaries 
turn themselves to producing the vel¬ 
vet ; but, in some one or other of a 
hun Ired modes, they take the place of 
that which does. There was capital 
in existence to do one of two things— 
to make the velvet, or to produce ne¬ 
cessaries for the journeymen brick¬ 
layers ; but not to do both. It was at 
the option of the consumer which of 
the two should happen; and if he 
chooses the velvet, they go without 
the necessaries. 

For further illustration, let us sup¬ 
pose the same case reversed. The 
consumer has been accustomed to buy 
velvet, but resolves to discontinue that 
expense, and to employ the same 
annual sum in hiring bricklayers. If 
the common opinion be correct, this 
change in the mode of his expenditure 
gives no additional employment to 
labour, but only transfers employment 
from velvet-makers to bricklayers. On 
closer inspection, however, it will be 
seen that there is an increase of the 
total sum applied to the remuneration 
of labour. The velvet manufacturer, 
supposing him aware of the diminished 
demand for his commodity, diminishes 
the production, and sets at liberty a 
corresponding portion of the capital 
employed in the manufacture. This 
capital, thus withdrawn from the 
maintenance of velvet-makers, is not 
the same fund with that which the cus 
tomer employs in maintaining brick¬ 
layers ; it is a second fund. There are 

E 2 



52 BOOK I. CHAPTER V. § 9. 


therefore two funds to he employed in 
the maintenance and remuneration of 
labour, where before there was only- 
one. There is not a transfer of em¬ 
ployment from velvet-makers to brick¬ 
layers ; there is a new employment 
created for bricklayers, and a transfer 
of employment from velvet-makers to 
some other labourers, most probably 
those who produce the food and other 
things which the bricklayers consume. 

In answer to this it is said, that 
though money laid out in buying velvet 
is not capital, it replaces a capital; 
that though it does not create a new 
demand for labour, it is the necessary 
means of enabling the existing demand 
to be kept up. The funds (it may be 
said) of the manufacturer, while locked 
up in velvet, cannot be directly applied 
to the maintenance of labour ; they do 
not begin to constitute a demand for 
labour until the velvet is sold, and the 
capital which made it replaced from 
the outlay of the purchaser; and thus, 
it may be said, the velvet-maker and 
the velvet-buyer have not two capitals, 
but only one capital between them, 
which by the act of purchase the buyer 
transfers to the manufacturer : and if 
instead of buying velvet he buys 
labour, he simply transfers this capital 
elsewhere, extinguishing as much de¬ 
mand for labour in one quarter as he 
creates in another. 

The premises of this argument are 
not denied. To set free a capital 
which would otherwise be locked up in 
a form useless for the support of labour, 
is, no doubt, the same thing to the in¬ 
terests of labourers as the creation of a 
new capital. It is perfectly true that 
if I expend 1000/. in buying velvet, I 
enable the manufacturer to employ 
1000/. in the maintenance of labour, 
which could not have been so employed 
while the velvet remained unsold : and 
if it would have remained unsold for 
ever unless I bought it, then by chang¬ 
ing my purpose and hiring bricklayers 
instead, I undoubtedly create no new 
demand for labour : for while I employ 
1000/. in hiring labour on the one hand, 
I annihilate for ever 1000/. of the 
velvet-maker’s capital on the other. 
But this is confounding the effects 


arising from the mere suddenness of a 
change with the effects of the change 
itself. If when the buyer ceased to pur¬ 
chase, the capital employed in making 
velvet for his use necessarily perished, 
then his expending the same amount 
in hiring bricklayers would be no crea¬ 
tion, but merely a transfer, of employ¬ 
ment. The increased employment 
which I contend is given to labour, 
would not be given unless the capital 
of the velvet-maker could be liberated, 
and would not be given until it was 
liberated. But every one knows that 
the capital invested in an employment 
can be withdrawn from it, if sufficient 
time be allowed. If the velvet-maker 
had previous notice, by not receiving 
the usual order, he will have produced 
1000/. less velvet, and an equivalent 
portion of his capital will have been 
already set free. If he had no previous 
notice, and the article consequently re¬ 
mains on his hands, the increase of his 
stock will induce him next year to sus¬ 
pend or diminish his production until 
the surplus is carried off. When this 
process is complete, the manufacturer 
will find himself as rich as before, with 
undiminished power of employing la¬ 
bour in general, though a portion of his 
capital will now be employed in main¬ 
taining some other kind of it. Until 
this adjustment has taken place, the 
demand for labour will be merely 
changed, not increased : but as soon as 
it has taken place, the demand for 
labour is increased. Where there was 
formerly only one capital employed in 
maintaining weavers to make 1000/. 
worth of velvet, there is now that same 
capital employed in making something 
else, and 1000/. distributed among 
bricklayers besides. There are now 
two capitals employed in remunerating 
two sets of labourers; while before, 
one of those capitals, that of the cus¬ 
tomer, only served as a wheel in the 
machinery by which the other capital, 
that of the manufacturer, carried on its 
employment of labour from year to year. 

The proposition for which I am con¬ 
tending is in reality equivalent to the 
following, which to some minds will 
appear a truism, though to others it is 
a paradox : that a person does good to 





FUNDAMENTAL PROPOSITIONS ON CAPITAL. 53 


labourers, not by what he consumes on 
himself, but solely by what he does not 
so consume. If instead of laying out 
100Z. in wine or silk, I expend it in 
wages, the demand for commodities is 
precisely equal in both cases: in the 
one it is a demand for 100/. worth of 
wine or silk, in the other, for the same 
value of bread, beer, labourers’ clothing, 
fuel, and indulgences; but the la¬ 
bourers of the community have in the 
latter case the value of 100/. more of 
the produce of the community dis¬ 
tributed among them. I have con¬ 
sumed that much less, and made over 
my consuming power to them. If it 
were not so, my having consumed less 
would not leave more to be consumed 
by others; which is a manifest contra¬ 
diction. When less is not produced, 
what one person forbears to consume is 
necessarily added to the share of those 
to whom he transfers his power of pur¬ 
chase. In the case supposed I do not 
necessarily consume less ultimately, 
since the labourers whom I pay may 
build a house for me, or make some¬ 
thing else for my future consumption. 
But I have at all events postponed my 
consumption, and have turned over 
part of my share of the present produce 
of the community to the labourers. If 
after an interval I am indemnified, it 
is not from the existing produce, but 
from a subsequent addition made to it. 
I have therefore left more of the exist¬ 
ing produce to be consumed by others ; 
and have put into the possession of 
labourers the power to consume it. 

. There cannot be a better reductio ad 
absurdum of the opposite doctrine than 
that afforded by the Poor Law. If it 
be equally for the benefit of the labour¬ 
ing classes whether I consume my 
means in the form of things purchased 
for my own use, or set aside a portion 
in the shape of wages or alms for their 
direct consumption, on what ground 
can the policy be justified of taking my 
money from me to support paupers ? 
since my unproductive expenditure 
would have equally benefited them, 
while I should have enjoyed it too. If 
society can both eat its cake and have 
it, why should it not be allowed the 
double indulgence ? But common sense 


tells every one in his own case (though 
he does not see it on the larger scale) 
that the poor-rate which he pays is 
really subtracted from his own con¬ 
sumption ; and that no shifting of pay¬ 
ment backwards and forwards will 
enable two persons to eat the same 
food. If he had not been required to 
pay the rate, and had consequently 
laid out the amount on himself, the 
poor would have had as much less for 
their share of the total produce of the 
country, as he himself would have con¬ 
sumed more.* 

* The following case, which presents the 
argument in a somewhat different shape, 
may serve for stiil further illustration. 

Suppose that a rich individual, A, expends 
a certain amount daily in wages or alms, 
which, as soon as received, is expended and 
consumed, in the form of coarse food, by the 
receivers. A dies, leaving his property to B, 
who discontinues this item of expenditure, 
and expends in lieu of it the same sum each 
day in delicacies for his own table. I have 
chosen this supposition, in order that the 
two cases may be similar in all their cir¬ 
cumstance 5 , except that which is the subject 
of comparison. In order not to obscure the 
essential facts of the case by exhibiting them 
through the hazy medium of a money trans¬ 
action, let us further suppose that A, and 
B after him, are landlords of the estate on 
which both the food consumed by the re¬ 
cipients of A’s disbursements, and the arti¬ 
cles of luxury supplied for B’s table, are 
produced; and that their rent is paid to 
them in kind, they giving previous notice 
what description of produce they shall re¬ 
quire. The question is, whether B's expen¬ 
diture gives as much employment or as much 
food to his poorer neighbours as A’s gave. 

From the case as stated, it seems to follow 
that while A lived, that portion of his income 
which he expended in wages or alms, would 
be drawn by him from the farm in the shape 
of food for labourers, and would be used as 
such ; while B, who came after him, would 
require, instead of this, an equivalent value 
in expensive articles of food, to be consumed 
in his own household: that the farmer, 
therefore, would, under B’s regime, produce 
that much less of ordinary food, and more of 
expensive delicacies, for each day of the 
year, than was produced in A’s time, and 
that there would be that amount less of 
food shared, throughout the year, among the 
labouring and poorer classes. This is what 
would be conformable to the principles laid 
down in the text. Those who think differ¬ 
ently, must, on the other hand, suppose that 
the luxuries required by B would be pro¬ 
duced, not instead of, but in addition to, the 
food previously supplied to A’s labourers, and 
that the aggregate produce of the country 
would be increased in amount. But when it 
is asked, how this double production would 





BOOK I. CHAPTER V. § 9. 


54 

It appears, then, that a demand de¬ 
layed until the work is completed, and 
furnishing no advances, hut only re¬ 
imbursing advances made by others, 
contributes nothing to the demand for 
labour; and that what is so expended, 
is, in all its effects, so far as regards 
the employment of the labouring class, 
a mere nullity ; it does not and cannot 
create any employment except at the 
expense of other employment which 
existed before. 

But though a demand for velvet does 
nothing more in regard to the employ¬ 
ment for labour and capital, than to 
determine so much of the employment 
which already existed, into that par¬ 
ticular channel instead of any other ; 
still, to the producers already engaged 

be effected —how the farmer, whose capital 
and labour were already fully employed, 
would be enabled to supply the new wants of 
B, without producing less of other things; 
the only mode which presents itself is, that 
he should Jirxt produce the food, and then, 
giving that food to the labourers whom A 
formerly fed, should by means of their 
labour, produce the luxuries wanted by B. 
This, accordingly, when the objectors are 
hard pressed, appears to be really their 
meaning. But it is an obvious answer, that 
on this supposition, B must wait for his 
luxuries till the second year, and they are 
wanted this year. By the original hypo¬ 
thesis, he consumes his luxurious dinner day 
by day, pari passu with the rations of bread 
and potatoes formerly served out by A to his 
labourers. There is not time to feed the 
labourers first, and supply B afterwards: 
he and they cannot both have their wants 
ministered to : he can only satisfy his own 
demand for commodities, by leaving as much 
of theiis, as was formerly supplied from that 
fund, unsatisfied. 

It may, indeed, be rejoined by an objector, 
that, since on the present showing, time is 
the only thing wanting to render the expen¬ 
diture of B consistent with as large an em¬ 
ployment to labour as was given by A, why 
may we not suppose that B postpones his in¬ 
creased consumption of personal luxuries 
until they can be furnished to him by the 
labour of the persons whom A employed ? In 
that case, it may be said, he would employ 
and feed as much labour as his predecessors. 
Undoubtedly he would ; but why ? Because 
his ingome would be expended in exactly 
the same manner as his predecessor’s; it 
would be expended in wages. A reserved 
from his personal consumption a fund which 
he paid away directly to labourers; B does 
the same, only instead of paying it to them 
himself, he leaves it in the hands of the 
farmer, who pays it to them for him. On 
this supposition, B, in the first year, neither 
expending the amount, as far as he is per- 


in the velvet manufacture, and not in¬ 
tending to quit it, this is of the utmost 
importance. To them, a falling off in 
the demand is a real loss, and one 
which, even if none of their goods 
finally perish unsold, may mount to 
any height, up to that which would 
make them choose, as the smaller evil, 
to retire from the business. On the 
contrary, an increased demand enables 
them to extend their transactions—to 
make a profit on a larger capital, if 
they have it, or can borrow it; and, 
turning over their capital more rapidly, 
they will employ their labourers more 
constantly, or employ a greater num¬ 
ber than before. So that an increased 
demand for a commodity does really, 
in the particular department, often 

sonally concerned, in A’s manner nor in his 
own, really saves that portion of his income, 
and lends it to the farmer. And if, in sub¬ 
sequent years, confining himself within the 
year’s income, he leaves the farmer in arrears 
to that amount, it becomes an additional 
capital, with which the farmer may per¬ 
manently employ and feed A’s labourers. 
Nobody pretends that such a change as this, 
a change from spending an income in wages 
of labour, to saving it for investment, de¬ 
prives any labourers of employment. What 
is affirmed to have that effect is, the change 
from hiring labourers to buying commodities 
for personal use; as represented by our 
original hypothesis. 

In our illustration we have supposed no 
buying and selling, or use of money. But 
the case as we have put it, corresponds with 
actual fact in everything except the details 
of the mechanism. The whole of any 
country is virtually a single farm and manu¬ 
factory, from which every member of the 
community draws his appointed share of the 
produce, having a certain number of coun¬ 
ters, called pounds sterling, put into his 
hands, which, at his convenience, he brings 
back and exchanges for such goods as he pre¬ 
fers, up to the limit of the amount. He does 
not, as in our imaginary case, give notice 
beforehand what things he shall require; 
but the dealers and producers are quite capa¬ 
ble of finding it cut by observation, and any 
change in the demand is promptly follow r ed 
by an adaptation of the supply to it. If a 
consumer changes from paying away a part 
of his income in wages, to spending it that 
same day (not some subsequent and distant 
day) in things for his own consumption, and 
perseveres in this altered practice until pro¬ 
duction has had time to adapt itself to the 
alteration of demand, there will from that 
time be le«s food and other articles for the 
use of labourers, produced in the country, by 
exactly the value of the extra luxuries now 
demanded ; and the labourers, as a class, 
will be worse off by the precise amount. 



FUNDAMENTAL PROPOSITIONS ON CAPITAL. 


cause a greater employment to be 
given to labour by the same capital. 
The mistake lies in not perceiving that 
in the cases supposed, this advantage 
is given to labour and capital in one 
department, only by being withdrawn 
from another; and that when the 
change has produced its natural effect 
of attracting into the employment ad¬ 
ditional capital proportional to the in¬ 
creased demand, the advantage itself 
ceases. 

The grounds of a proposition, when 
well understood, usually give a tolera¬ 
ble indication of the limitations of it. 
The general principle, now stated, is, 
that demand for commodities deter¬ 
mines merely the direction of labour, 
and the kind of wealth produced, but 
not the quantity or efficiency of the 
labour, or the aggregate of wealth. 
But to this there are two exceptions. 
First; when labour is supported, but 
not fully occupied, a new demand for 
something which it can produce, may 
stimulate the labour thus supported to 
increased exertions, of which the re¬ 
sult may be an increase of wealth, to 
the advantage of the labourers them¬ 
selves and of others. Work which can 
be done in the spare hours of persons 
subsisted from some other source, can 
(as before remarked) be undertaken 
without withdrawing capital from other 
occupations, beyond the amount (often 
very small) required to cover the ex¬ 
pense of tools and materials ; and even 
this will often be provided by savings 
made expressly for the purpose. The 
reason of our theorem thus failing, the 
theorem itself fails, and employment 
of this kind may, by the springing up 
of a demand for the commodity, be 
called into existence without depriving 
labour of an equivalent amount of em¬ 
ployment in any other quarter. The 
demand does not, even in this case, 
operate on labour any otherwise than 
through the medium of an existing 
capital; but it affords an inducement 
which causes that capital to set in 
motion a greater amount of labour than 
it did before. 

The second exception, of which I 
shall speak at length in a subsequent 
chapter, consists in the known effect 


55 

of an extension of ihe market for a com¬ 
modity, in rendering possible an in¬ 
creased development of the division of 
labour, and hence a more effective dis¬ 
tribution of the pioductive forces of so¬ 
ciety. This, like the former, is more 
an exception in appearance, than it is 
in reality. It is not the money paid by 
the purchaser which remunerates the 
labour ; it is the capital of the pro¬ 
ducer : the demand only determines in 
what manner that capi al shall be em¬ 
ployed, and what kind of labour it shall 
remunerate; but if it determines that 
the commodity shall be produced on a 
large scale, it enables the same capital 
to produce more of the commodity, and 
may, by an indirect effect in causing 
an increase of capital, produce an even¬ 
tual increase of the remuneration of the 
labourer. 

The demand for commodities is a 
consideration of importance rather in 
the theory of exchange, than in that 
of production. Looking at things in 
the aggregate, and permanently, the 
remuneration of the producer is derived 
from the productive power of his own 
capital. The sale of the produce for 
money, and the subsequent expenditure 
of the money in buying other commo¬ 
dities, are a mere exchange of equiva¬ 
lent values, for mutual accommodation. 
It is true that, the division of employ¬ 
ments being one of the principal means 
of increasing the productive power of 
labour, the power of exchanging gives 
rise to a great increase of the produce; 
but even then it is production, not ex¬ 
change, which remunerates labour and 
capital. We cannot too strictly repre¬ 
sent to ourselves the operation of ex¬ 
change, whether conducted by barter 
or through the medium of money, as 
the mere mechanism by which each 
person transforms the remuneration of 
his labour or of his capital into the par¬ 
ticular shape in which it is most conve¬ 
nient to him to possess it; but in no wise 
the source of the remuneration itself. 

§ 10. The preceding principles de¬ 
monstrate the fallacy of many popular 
arguments and doctrines, which are 
continua ly reproducing themselves in 
new forms. For example, it has been 




56 BOOK I. CHAPTER V. § 10. 


contended, and by some from whom 
better things might have been ex¬ 
pected, that the argument for the in¬ 
come-tax, grounded on its falling on 
the higher and middle classes only, 
and sparing the poor, is an error; some 
have gone so far as to say, an impos¬ 
ture ; because in taking from the rich 
what they would have expended 
among the poor, the tax injures the 

f )oor as much as if it had been directly 
evied from them. Of this doctrine 
we now know what to think. So far, 
indeed, as what is taken from the rich 
in taxes, would, if not so taken, have 
been saved and converted into capital, 
or even expended in the maintenance 
and wages of servants or of any class 
of unproductive labourers, to that ex¬ 
tent the demand for labour is no doubt 
diminished, and the poor injuriously 
affected, by the tax on the rich ; and 
as these effects are almost always pro¬ 
duced in a greater or less degree, it is 
impossible so to tax the rich as that 
no portion whatever of the tax can fall 
on the poor. But even here the ques¬ 
tion arises, whether the government, 
after receiving the amount, will not 
lay out as great a portion of it in the 
direct purchase of labour, as the tax¬ 
payers would have done. In regard to 
all that portion of the tax, which, if 
not paid to the government, would 
have been consumed in the form of 
commodities (or even expended in ser¬ 
vices if the payment has been advanced 
by a capitalist), this, according to the 
principles we have investigated, falls 
definitively on the rich, and not at all 
on the poor. There is exactly the same 
demand for labour, so far as this por¬ 
tion is concerned, after the tax, as 
before it. The capital which hitherto 
employed the labourers of the country, 
remains, and is still capable of employ¬ 
ing the same number. There is the 
same amount of produce paid in wages, 
or allotted to defray the feeding and 
clothing of labourers. 

If those against whom I am now 
contending were in the right, it would 
be impossible to tax anybody except 
the poor. If it is taxing the labourers, 
to tax what is laid out in the produce 
of labour, the labouring classes pay all 


the taxes. The same argument, how¬ 
ever, equally proves, that it is impos¬ 
sible to tax the labourers at all; since 
the tax, being laid out either in labour 
or in commodities, comes all back to 
them; so that taxation has the 
singular property of falling on nobody. 
On the same showing, it would do the 
labourers no harm to take from them 
all they have, and distribute it among 
the other members of the community. 
It would all be “spent among them,” 
which on this theory comes to the 
same thing. The error is produced by 
not looking directly at the realities of 
the phenomena, but attending only to 
the outward mechanism of paying and 
spending. If we look at the effects 
produced not on the money, which 
merely changes hands, but on the com¬ 
modities which are used and con¬ 
sumed, we see that, in consequence of 
the income-tax, the classes who pay it 
do really diminish their consumption. 
Exactly so far as they do this, they are 
the persons on whom the tax falls. It 
is defrayed out of what they would 
otherwise have used and enjoyed. So 
far, on the other hand, as the burthen 
falls,, not on what they would have 
consumed, but on what they would 
have saved to maintain production, or 
spent in maintaining or paying unpro¬ 
ductive labourers, to that extent the 
tax forms a deduction from what would 
have been used and enjoyed by the 
labouring classes. But if the govern¬ 
ment, as is probably the fact, expends 
fully as much of the amount as the 
tax-payers -would have done in the 
direct employment of labour, as in 
hiring sailors, soldiers, and policemen, 
or in paying off debt, by which last 
operation it even increases capital; 
the labouring classes not only do not 
lose any employment by the "tax, but 
may possibly gain some, and the whole 
of the tax falls exclusively where it 
was intended. 

All that portion of the produce of 
the country which any one, not a 
labourer, actually and literally con¬ 
sumes for his own use, does not contri¬ 
bute in the smallest degree to the 
maintenance of labour. No one is 
benefited by mere consumption, except 




CIRCULATING AND FIXED CAPITAL. 57 


the person who consumes. And a per¬ 
son cannot both consume his income 
himself, and make it over to he con¬ 
sumed by others. Taking away a cer¬ 
tain portion by taxation cannot deprive 
both him and them of it, but only him 


or them. To know which is the suf¬ 
ferer, we must understand whose con¬ 
sumption will have to be retrenched in 
consequence : this, whoever it be, is 
the person on whom the tax really 
falls. 


CHAPTER VI. 

ON CUMULATING AND FIXED CAFITAL. 


§ 1. To complete our explanations 
on the subject of capital, it is necessary 
to say something of the two species 
into which it is usually divided. The 
distinction is very obvious, and though 
not named, has been often adverted to, 
in the two preceding chapters : but it is 
now proper to define it accurately, and 
to point out a few of its consequences. 

Of the capital engaged in the pro¬ 
duction of any commodity, there is a 
part which, after being once used, 
exists no longer as capital; is no 
longer capable of rendering service to 
production, or at least not the same ser¬ 
vice, nor to the same sort of produc¬ 
tion. Such, for example, is the portion 
of capital which consists of materials. 
The tallow and alkali of which soap is 
made, once used in the manufacture, 
are destroyed as alkali and tallow; and 
cannot be employed any further in the 
soap manufacture, though in their al¬ 
tered condition, as soap, they are 
capable of being used as a material or 
an instrument in other branches of 
manufacture. In the same division 
must be placed the portion of capital 
which is paid as the wages, or con¬ 
sumed as the subsistence, of labourers. 
That part of the capital of a cotton- 
spinner which he pays away to his 
workpeople, once so paid, exists no 
longer as his capital, or as a cotton- 
spinner’s capital: such portion of it 
as the workmen consume, no longer 
exists as capital at all: even if they 
save any part, it may now be more 
properly regarded as a fresh capital, 
the result of a second act of accumula¬ 
tion. Capital which in this manner 


fulfils the -whole of its office in the pro¬ 
duction in which it is engaged, by a 
single use, is called Circulating Capital. 
The term, which is not very appro¬ 
priate, is derived from the circum¬ 
stance, that this portion of capital re¬ 
quires to be constantly renewed by the 
sale of the finished product, and when 
renewed is perpetually parted with in 
buying materials and paying wages ; 
so that it does its work, not by being 
kept, but by changing hands. 

Another large portion of capital, 
however, consists in instruments of pro¬ 
duction, of a more or less permanent 
character: which produce their effect 
not by being parted with, but by being 
kept; and the efficacy of which is not 
exhausted by a single use. To this 
class belong buildings, machinery, and 
all or most things known by the name 
of implements or tools. The durability 
of some of these is considerable, and 
their function as productive instruments 
is prolonged through many repetitions 
of the productive operation. In this 
class must likewise be included capital 
sunk (as the expression is) in permanent 
improvements of land. So also the 
capital expended once for all, in the 
commencement of an undertaking, to 
prepare the way for subsequent opera¬ 
tions : the expense of opening a mine, 
for example: of cutting canals, of 
making roads or docks. Other ex¬ 
amples might be added, but these are 
sufficient. Capital which exists in any 
of these durable shapes, and the return 
to which is spread over a period of 
corresponding duration, is called Fixed 
Capital. 







58 BOOK I. CHAPTER VI. § 2. 


Of fixed capitals, some kinds require 
to be occasionally or periodically re¬ 
newed. Such are all implements and 
buildings : they require, at intervals, 
partial renewal by means of repairs, 
and are at last entirely worn out, and 
cannot be of any further service as 
buildings and implements, but fall back 
into the class of materials. In other 
cases, the capital does not, unless as a 
consequence of some unusual accident, 
require entire renewal: but there is 
always some outlay needed, either 
regularly or at least occasional y, to 
keep it up. A dock or a canal, once 
made, does not require, like a machine, 
to be made again, unless purposely 
destroyed, or unless an earthquake or 
some similar catastrophe has tided it 
up : but regular and frequent outlays 
are necessary to keep it in repair. 
The cost of opening a mine needs not 
be incurred a second time ; but unless 
some one goes to the expense of keeping 
the mine clear of water, it is soon ren¬ 
dered useless. The most permanent 
of all kinds of fixed capital is that em¬ 
ployed in giving increased productive¬ 
ness to a natural agent, such as land. 
The draining of ma; shy or inundated 
tracts like the Bedford Level, the 
reclaiming of land from the sea, or its 
protection by embankments, are im¬ 
provements calculated for perpetuity; 
but drains and dykes require frequent 
repair. r I he same character of perpe¬ 
tuity belongs to the improvement of 
land by subsoil draining, which adds 
so much to the productiveness of the 
clay soils ; or by permanent manures, 
' that is, by the addition to the soil, not 
of the substances which enter into the 
composition of vegetables, and which 
are therefore consumed by vegetation, 
but of those which merely alter the 
relation of the soil to air and water ; 
as sand and lime on the heavy soils, 
clay and marl on the light. Even such 
works, however, require some, though 
it may be very little, occasional out.ay 
to maintain tneir full effect. 

These improvements, however, by 
the very fact of their deserving that 
title, produce an increase of return, 
which, after defraying all expenditure 
necessary for keeping them up, still 


leaves a surplus. This surplus forms 
the return to the capital sunk in the 
first instance, and that return does not, 
as in the case of machinery, terminate 
by the wearing out of the machine, but 
continues for ever. The land thus in¬ 
creased in productiveness, bears a 
value in the market, proportional to 
the increase : and hence it is usual to 
consider the capital which was in¬ 
vested, or sunk, in making the improve¬ 
ment, as still existing in the increased 
\alue of the land. There must be no 
mistake, however. The capital, like 
all other capital, has been consumed. 
It was consumed in maintaining the 
labourers who executed the improve¬ 
ment, and in the wear and tear of the 
tools by which they were assisted. 
But it was consumed productively, and 
has left a permanent result in the im¬ 
proved productiveness of an appropri¬ 
ated natural agent, the land. \Ve 
may call the increased produce the 
joint resu’t of the land and of a capital 
fixed in the land. But as the capital, 
having in reality been consumed, can¬ 
not be withdrawn, its productiveness 
is thenceforth indissolubly blended 
with that arising from the original 
qualities of the soil; and the remune¬ 
ration for the use of it thenceforth de¬ 
pends, not upon the laws which govern 
the returns to labour and capital, but 
upon those which govern the recom¬ 
pense for natural agents. What these 
are, we shall see hereafter.* 

§ 2. There is a great difference be¬ 
tween the effects of circulating and 
those of fixed capital, on the amount of 
the gross produce of the country. Cir¬ 
culating capital being destroyed as 
such, or at any rate finally lost to the 
owner, by a single use; and the pro¬ 
duct resulting from that one use being 
the only source from which the owner 
can replace the capital, or obtain any 
remuneration for its productive em¬ 
ployment ; the product must of course 
be sufficient for those purposes, or in 
other words, the result of a single use 
must be a reproduction equal to the 
whole amount of the circulating capi¬ 
tal used, and a profit besides. This, 

* infra, book ii. chap. xvi. On Rent. 



CIRCULATING AND FIXED CAPITAL. 


however, is by no means necessary in 
the case of fixed capital. Since ma¬ 
chinery, lor example, is not wholly 
consumed by one use, it is not neces¬ 
sary tlmt it should be wholly replaced 
from the product of that use. The 
machine answers the purpose of its 
owner, if it brings in, during each in¬ 
terval of time, enough to cover the ex¬ 
pense of repairs, and the deterioration 
in value which the machine has sus¬ 
tained during the same time, with a 
surplus sufficient to yield the ordi¬ 
nary profit on the entire value of the 
machine. 

From this it follows that all increase 
of fixed capital, when taking place at 
the expense of circulating, must be, at 
least temporarily, prejudicial to the in¬ 
terests of the labourers. This is true, 
not of machinery alone, but of all im¬ 
provements by which capital is sunk; 
that is, rendered permanently incapa¬ 
ble of being applied to the maintenance 
and remuneration of labour. Suppose 
that a person farms his own land, with 
a capital of two thousand quarters of 
corn, employed in maintaining la¬ 
bourers during one year (for simplicity 
we omit the consideration of seed and 
tools), whose labour produces him an¬ 
nually two thousand four hundred 
quarters, being a profit of twenty per 
cent. This profit we shall suppose 
that he annually consumes, carrying 
on his i perations from year to year on 
the original capital of two thousand 
quarters. Let us now suppose that by 
the expenditure of half his capital he 
effects a permanent improvement of his 
land, which is executed by half his 
labourers, and occupies them for a 
year, alter which he will only require, 
for the effectual cultivation of his land, 
half as many labourers as before. The 
remainder of his capital he employs as 
usual. In the first year there is no 
difference in the condition of the la¬ 
bourer's, except that part of them have 
received the same pay for an operation 
on the land, which they previously 
obtained for ploughing, sowing, and 
reaping. At the end of the year, how¬ 
ever, the improver has not, as before, 
a capital of two thousand quarters of 
corn. Only one thousand quarters of 


59 

his capital have been reproduced in 
the usual way: he has now only 
those thousand quarters and his im¬ 
provements. He will employ, in the 
next and in each following year, only 
half the number of labourers, and will 
divide among them only half the 
former quantity of subsistence. The 
loss will soon be made up to them if 
the improved land, with the diminished 
quantity of labour, produces two 
thousand four hundred quarters as be¬ 
fore, because so enormous an accession 
of gain will probably induce the im¬ 
prover to save a part, add it to his 
capital, and become a larger employer 
of labour. But it is conceivable that 
this may not be the case ; for (sup¬ 
posing, as we may do, that the im¬ 
provement will last indefinitely, with¬ 
out any outlay worth mentioning to 
keep it up) the improver will have 
gained largely by his improvement if 
the land now yields, not two thousand 
four hundred, but one thousand five 
hundred quarters ; since this will re¬ 
place the one thousand quarters forming 
his present circulating capital, with a 
profit of twenty-five per cent (instead 
of twenty as before) on the whole capit al, 
fixed and circulating together. The 
improvement, therefore, may be a very 
profitable one to him, and yet very 
injurious to the labourers. 

The supposiiion, in the terms in 
which it has been stated, is purely 
ideal; or at most applicable only to 
such a case as that of the conversion of 
arable land into pasture, which, though 
formerly a frequent practice, is re¬ 
garded by modern agriculturists as the 
reverse of an improvement. The clear¬ 
ing aw r ay of the small farmers in the 
north of Scotland, within the present 
century, was however a case of it; and 
Ireland, since the potato famine and 
the repeal of the corn-laws, is another. 
The remarkable decrease which has 
lately attracted notice in the gross 
produce of Irish agriculture, is, to all 
appearance, partly attributable to the 
diversion of land from maintaining 
human labourers to feeding cattle: and 
it could not have taken place without 
the removal of a large part of the Irish 
population by emigration or death. 



BOOK I. CHAPTER VI. § 2. 


60 

We have thus two recent instances in 
which what was regarded as an agri¬ 
cultural improvement, has diminished 
the power of the country to support its 
population. The effect, however, of 
all the improvements due to modern 
science is to increase, or at all events, 
not to diminish the gross produce. But 
this does not affect the substance of 
the argument. Suppose that the im¬ 
provement does not operate in the 
manner supposed—does not enable a 
part of the labour previously employed 
on the land to be dispensed with—but 
only enables the same labour to raise 
a greater produce. Suppose, too, that 
the greater produce, which by means of 
the improvement can be raised from 
the soil with the same labour, is all 
wanted, and will find purchasers. The 
improver will in that case require the 
same number of labourers as before, at 
the same wages. But where will he 
find the means of paying them? He 
lias no longer his original capital of 
two thousand quarters disposable for 
the purpose. One thousand of them 
are lost and gone—consumed in making 
the improvement. If he is to employ 
as many labourers as before, and pay 
them as highly, he must borrow, or 
obtain from some other source, a thou¬ 
sand quarters to supply the deficit. 
But these thousand quarters already 
maintained, or were destined to main¬ 
tain, an equivalent quantity of labour. 
They are not a fresh creation; their 
destination is only changed from one 
productive employment to another; 
and though the agriculturist has made 
up the deficiency in his own circulating 
capital, the breach in the circulating 
capital of the community remains un¬ 
repaired. 

The argument relied on by most of 
these who contend that machinery can 
never be injurious to the labouring 
class, is, that by cheapening produc¬ 
tion it creates such an increased de¬ 
mand for the commodity, as enables, 
ere long, a greater number of persons 
than ever to find employment in pro¬ 
ducing it. This argument does not 
seem to me to have the weight com¬ 
monly ascribed to it. The fact, though 
too broadly stated, is, no doubt, often 


true. The copyists who were thrown 
out of employment by the invention 
of printing, were doubtless soon out¬ 
numbered by the compositors and 
pressmen who took their place: and 
the number of labouring persons now 
occupied in the cotton manufacture is 
many times greater than were so occu¬ 
pied previously to the inventions of 
Hargreaves and Arkwright, which 
shows that besides the enormous fixed 
capital now embarked in the manufac- . 
ture, it also employs a far larger circu¬ 
lating capital than at any former time. 
But if this capital was drawn from 
other employments : if the funds which 
took the place of the capital sunk in 
costly machinery, were supplied not by 
any additional saving consequent on 
the improvements, but by drafts on the 
general capital of the community; 
what better are the labouring classes 
for the mere transfer? In what manner 
is the loss they sustained by the con¬ 
version of circulating into fixed capital, 
made up to them by a mere shifting of 
part of the remainder of the circulating 
capital from its old employments to a 
new one ? 

All attempts to make out that the 
labouring classes as a collective body 
cannot suffer temporarily by the intro¬ 
duction of machinery, or by the sinking 
of capital in permanent improvements, 
are, I conceive, necessarily fallacious. 
That they would suffer in the par¬ 
ticular department of industry to which 
the change applies, is generally ad¬ 
mitted, and obvious to common sense ; 
but it is often said, that though em¬ 
ployment is withdrawn from labour in 
one department, an exactly equivalent 
employment is opened for it in others, 
because what the consumers save in 
the increased cheapness of one par¬ 
ticular article enables them to augment 
their consumption of others, thereby 
increasing the demand for other kinds 
of labour. This is plausible, but, as 
was shown in the last chapter, involves 
a fallacy; demand for commodities 
being a totally different thing from 
demand for labour. It is true, the con¬ 
sumers have now additional means of 
buying other things; but this will not 
create the other things, unless there ia 



CIRCULATING AND FIXED CAPITAL. 


capital to produce them, and the im¬ 
provement has not set at liberty any 
capital, if even it has not absorbed 
some from other employments. The 
supposed increase of production and of 
employment for labour in other depart¬ 
ments therefore will not take place ; 
and the increased demand for com¬ 
modities by some consumers, will be 
"balanced by a cessation of demand on 
the part of others, namely, the la¬ 
bourers who were superseded by the 
improvement, and who will now be 
maintained, if at all, by sharing, either 
in the way of competition or of charity, 
in what was previously consumed by 
other people. 

§ 3. Nevertheless, I do not believe 
that as things are actually transacted, 
improvements in production are often, 
if ever, injurious, even temporarily, to 
the labouring classes in the aggregate. 
They would be so if they took place 
suddenly to a great amount, because 
much of the capital sunk must ne¬ 
cessarily in that case be provided from 
funds already employed as circulating 
capital. But improvements are always 
introduced very gradually, and are 
seldom or never made by withdrawing 
circulating capital from actual produc¬ 
tion, but are made by the employment 
of the annual increase. There are 
few, if any, examples of a great in¬ 
crease of fixed capital, at a time and 
place where circulating capital was 
not rapidly increasing likewise. It is 
not in poor or backward countries that 
great and costly improvements in pro¬ 
duction are made. To sink capital in 
land for a permanent return—to intro¬ 
duce expensive machinery—are acts 
involving immediate sacrifice for dis¬ 
tant objects ; and indicate, in the first 
place, tolerably complete security of 
property; in the second, considerable 
activity of industrial enterprise; and 
in the third, a high standard of what 
has been called the “ effective desire 
of accumulation which three things 
are the elements of a society rapidly 
progressive in its amount of capital. 
Although, therefore, the labouring 
classes must suffer, not only if the in¬ 
crease of fixed capital takes place at 


61 

the expense of circulating, but even if 
it is so large and rapid as to retard 
that ordinary increase to which the 
growth of population has habitually 
adapted itself; yet, in point of fact, 
this is very unlikely to happen, since 
there is probably no country whose 
fixed capital increases in a ratio more 
than proportional to its circulating. 
If the whole of the railways which, 
during the speculative madness of 
1845, obtained the sanction of Parlia¬ 
ment, had been constructed in the 
times fixed for the completion of each, 
this improbable contingency would, 
most likely, have been realized; but 
this very case has afforded a striking 
example of the difficulties which op¬ 
pose the diversion into new channels of 
any considerable portion of the capital 
that supplies the old: difficulties 
generally much more than sufficient to 
prevent enterprises that involve the 
sinking of capital, from extending 
themselves with such rapidity as to 
impair the sources of the existing em¬ 
ployment for labour. 

To these considerations must be 
added, that even if improvements did 
for a time decrease the aggregate pro¬ 
duce and the circulating capital of the 
community, they would not the less 
tend in the long run to augment both. 
They increase the return to capital; 
and of this increase the benefit must 
necessarily accrue either to the capi¬ 
talist in greater profits, or to the cus¬ 
tomer in diminished prices ; affording, 
in either case, an augmented fund from 
which accumulation may be made, 
while enlarged profits also hold out an 
increased inducement to accumulation. 
In the case we before selected, in which 
the immediate result of the improve¬ 
ment was to diminish the gross pro¬ 
duce from two thousand four hundred 
quarters to one thousand five hundred, 
yet the profit of the capitalist being 
now five hundred quarters instead of 
four hundred, the extra one hundred 
quarters, if regularly saved, would in 
a few years replace the one thousand 
quarters subtracted from his circulating 
capital. Now the extension of business 
which almost certainly follows in any 
department in which an improvement 




G2 BOOK I. CHAPTER VI. § 3. 


has been made, affords a strong in¬ 
ducement to those engaged in it to add 
to their capital; and hence, at the slow 
pace at which improvements are usually 
introduced, a great part of the capital 
which the improvement ultimately ab¬ 
sorbs, is drawn from the increased 
profits and increased savings which it 
has itself called forth. 

f J his tendency of improvements in 

f iroduction to cause increased accumu- 
ation, and thereby ultimately to in¬ 
crease the gross produce, even if tem¬ 
porarily diminishing it. will assume a 
still more decided character if it should 
appear that there are assignable limits 
both to the accumulation of capital, 
and to the increase of production from 
the land, which limits once attained, 
all further increase of produce must 
stop : but that improvements in pro¬ 
duction, whatever may be their other 
effects, tend to throw one or both of 
these limits farther off. Now, these 
are truths which will appear in the 
clearest light in a subsequent stage of 
our investigation. It will be seen, that 
the quantity of capital which will, or 
even which can, be accumulated in 
any country, and the amount of gross 
produce which will, or even which can, 
be raised, bear a proportion to the state 
of the arts of production there exist¬ 
ing ; and that every improvement, 
even if for the time it diminish the 
circulating capital and the gross pro¬ 
duce, ultimately makes room for a 
larger amount of both, than could pos¬ 
sibly have existed otherwise. It is 
this which is the conclusive answer to 
the objections against machinery ; and 
the proof thence arising of the ulti¬ 
mate benefit to labourers of mechanical 
inventions even in the existing state of 
society, will hereafter be seen to be 
conclusive.* But this does not dis¬ 
charge governments from the obligation 
of alleviating, and if possible prevent¬ 
ing, the evils of which this source of 
ultimate benefit is or may be produc¬ 
tive to an existing generation. If the 
sinking or fixing of capital in ma¬ 
chinery or useful works, were ever to 
proceed at such a pace as to impair 
materially the funds for the mainte- 
* Infra, book iv. chap. v. 


nance of labour, it would be incumbent 
on legislators to take measures for mo¬ 
derating its rapidity: and since im¬ 
provements which do not diminish 
employment on the whole, almost al¬ 
ways throw some particular class of 
labourers out of it, there cannot be a 
more legitimate object of the legisla¬ 
tor’s care than the interests of those 
avIio are thus sacrificed to the gains of 
their fellow-citizens and of posterity. 

To return to the theoretical distinc¬ 
tion between fixed and circulating 
capital. Since all wealth which is 
destined to be employed for reproduc¬ 
tion comes within the designation of 
capital, there are parts of capital which 
do not agree with the definition of 
either species of it; for instance, the 
stock of finished goods which a manu¬ 
facturer or dealer at any time possesses 
unsold in his warehouses. But this, 
though capital as to its destination, is 
not yet capital in actual exercise : it is 
not engaged in production, but has 
first to be sold or exchanged, that is, 
converted into an equivalent value of 
some other commodities; and there¬ 
fore is not yet either fixed or circulating 
capital; but will become either one or 
the other, or be eventually divided 
between them. With the proceeds of 
his finished goods, a manufacturer will 
partly pay his work-people, partly re¬ 
plenish his stock of the materials of 
his manufacture, and partly provide 
new buildings and machinery, or repair 
the old ; but how much will be devoted 
to one purpose, and how much to 
another, depends on the nature of the 
manufacture, and the requirements of 
the particular moment. 

It should be observed further, that 
the portion of capital consumed in the 
form of seed or material, though, un¬ 
like fixed capital, it requires to be at 
once replaced from the gross produce, 
stands yet in the same relation to the 
employment of labour as fixed capital 
does. What is expended in materials 
is as much withdrawn Irom the main¬ 
tenance and remuneration of labourers, 
as what is fixed in machinery; and if 
capital now expended in wages were 
diverted to the providing of materials, 
the effect on the labourers would be as 




DEGREES OF PRODUCTIVENESS. 63 


prejudicial as if it were converted into 
fixed capital. This, however, is a kind 
of change which never takes place. 
The tendency of improvements in pro¬ 
duction is always to economize, never 


to increase, the expenditure of seed or 
material for a given produce ; and the 
interest of the labourers has no detri¬ 
ment to apprehend from this source. 


CHAPTER VII. 

ON WHAT DEPENDS THE DEGREE OP PRODUCTIVENESS OF PRODUCTIVE AGENTS. 


§ 1. We have concluded our general 
survey of the requisites of production. 
We have found that they may he reduced 
to three : labour, capital, and the mate¬ 
rials and motive forces afforded by 
nature. Of these, labour and the raw 
material of the globe are primary and 
indispensable. Natural motive powers 
may be called in to the assistance of 
labour, and are a help, hut not an es¬ 
sential, of production. The remaining 
requisite, capital, is itself the product 
of labour: its instrumentality in pro¬ 
duction is therefore, in reality, that of 
labour in an indirect shape. It does 
not the less require to be specified 
separately. A previous application of 
labour to produce the capital required 
for consumption during the work, is no 
less essential than the application of 
labour to the work itself. Of capital, 
again, one, and by far the largest, por¬ 
tion, conduces to production only by 
sustaining in existence the labour which 
produces: the remainder, namely the 
instruments and materials, contribute 
to it directly, in the same manner with 
natural agents, and the materials sup¬ 
plied by nature. 

We now advance to the second great 
question in political economy ; on what 
the degree of productiveness of these 
agents depends. For it is evident that 
their productive efficacy varies greatly 
at various times and places. With the 
same population and extent of territory, 
some countries have a much larger 
amount of production than others, and 
the same country at one time a greater 
amoun than itself at another. Com¬ 
pare England either with a similar 
extent of territory in Russia, or with 


an equal population of Russians. Com¬ 
pare England now with England in 
the Middle Ages ; Sicily, Northern Af¬ 
rica, or Syria at present, with the same 
countries at the time of their greatest 
prosperity, before the Roman conquest. 
Some of the causes which contribute 
to this difference of productiveness are 
obvious ; others not so much so. We 
proceed to specify several of them. 

§ 2. The most evident cause of 
superior productiveness is what are 
called natural advantages. These are 
various. Fertility of soil is one of the 
principal. In this there are great 
varieties, from the deserts of Arabia 
to the alluvial plains of the Ganges, 
the Niger, and the Mississippi. A 
favourable climate is even more im¬ 
portant than a rich soil. There are 
countries capable of being inhabited, 
but too cold to be compatible with 
agriculture. Their inhabitants cannot 
pass beyond the nomadic state; they 
must live, like the Laplanders, by the 
domestication of the rein-deer, if not 
by hunting or fishing, like the miser¬ 
able Esquimaux. There are countries 
where oats will ripen, but not wheat, 
such as the North of Scotland ; others 
where wheat can be grown, but from 
excess of moisture and want of sun¬ 
shine, affords but a precarious crop; 
as in parts of Ireland. With each 
advance towards the south, or, in the 
European temperate region, towards 
the east, some new branch of agricul¬ 
ture becomes first possible, then advan¬ 
tageous ; the vine, maize, figs, olives, 
silk, rice, dates, successively present 
themselves, until we come to the 





64 BOOK I. CHAPTER VII. § 2. 


sugar, coffee, cotton, spices, &c. of 
climates which also afford, of the more 
common agricultural products, and 
with only a slight degree of cultiva¬ 
tion, two or even three harvests in a 
year. Nor is it in agriculture alone 
that differences of climate are impor¬ 
tant. Their influence is felt in many 
other branches of production: in the 
durability of all work which is exposed 
to the air; of buildings, for example. 
If the temples of Ivarnac and Luxor 
had not been injured by men, they 
might have subsisted in their original 
perfection almost for ever, for the in¬ 
scriptions on some of them, though 
anterior to all authentic history, are 
fresher than is in our climate an in¬ 
scription fifty years old: while at St. 
Petersburg, the most massive works, 
solidly executed in granite hardly a 
generation ago, are already, as tra¬ 
vellers tell us, almost in a state to 
require reconstruction, from alternate 
exposure to summer heat and intense 
frost. The superiority of the woven 
fabrics of Southern Europe over those 
of England in the richness and clear¬ 
ness of many of their colours, is 
ascribed to the superior quality of the 
atmosphere, for which neither the know¬ 
ledge of chemists nor the skill of dyers 
has been able to provide, in our hazy and 
damp climate, a complete equivalent. 

Another part of the influence of 
climate consists in lessening the phy¬ 
sical requirements of the producers. 
In hot regions, mankind can exist in 
comfort with less perfect housing, less 
clothing ; fuel, that absolute necessary 
of life in cold climates, they can almost 
dispense with, except for industrial 
uses. They also require less aliment; 
as experience had proved, long before 
theory had accounted for it by ascer¬ 
taining that most of what we consume 
as food is not required for the actual 
nutrition of the organs, but for keeping 
up the animal heat, and for supplying 
the necessary stimulus to the vital 
functions, which in hot climates is 
almost sufficiently supplied by air and 
sunshine. Much, therefore, of the 
labour elsewhere expended to procure 
the mere necessaries of life, not being 
required, more remains disposable for 


its higher uses and its enjoyments: if 
the character of the inhabitants does 
not rather induce them to use up these 
advantages in over-population, or in 
the indulgence of repose. 

Among natural advantages, besides 
soil and climate, must be mentioned 
abundance of mineral productions, in 
convenient situations, and capable of 
being worked with moderate labour. 
Such are the coal-fields of Great 
Britain, which do so much to compen¬ 
sate its inhabitants for the disadvan¬ 
tages of climate; and the scarcely 
inferior resource possessed by this 
country and the United States, in a 
copious supply of an easily reduced 
iron ore, at no great depth below the 
earth’s surface, and in close proximity 
to coal deposits available for working 
it. In mountain and hill districts, 
the abundance of natural water-power 
makes considerable amends for the 
usually inferior fertility of those re¬ 
gions. But perhaps a greater advan¬ 
tage than all these is a maritime 
situation, especially when accompanied 
with good natural harbours ; and, next 
to it, great navigable rivers, These 
advantages consist indeed Atholly in 
saving the cost of carriage. But few 
who have not considered the subject, 
have any adequate notion how great 
an extent of economical advantage 
this comprises; nor, without having 
considered the influence exercised on 
production by exchanges, and by what 
is called the division of labour, can it 
be fully estimated. So important is it, 
that it often does more than counter¬ 
balance sterility of soil, and almost 
every other natural inferiority; es¬ 
pecially in that early stage of industry 
in which labour and science have not 
yet provided artificial means of com¬ 
munication capable of rivalling the 
natural. In the ancient world, and in 
the middle ages, the most prosperous 
communities were not those which 
had the largest territory, or the most 
fertile soil, but rather those which had 
been forced by natural sterility to 
make the utmost use of a convenient 
maritime situation; as Athens, Tyre, 
Marseilles, Venice, the free cities ou 
the Baltic, and the like. 




DEGREES OF PRODUCTIVENESS 65 


§ 3. So much for natural advan¬ 
tages; the value of which, cceteris 
paribus, is too obvious to be ever 
underrated. But experience testifies 
that natural advantages scarcely ever 
do lor a community, no more than 
fortune and station do for an indivi¬ 
dual, anything like what it lies in their 
nature, or in their capacity, to do. 
Neither now nor in former ages have 
the nations possessing the best climate 
and soil been either the richest or the 
most powerful: but (in so far as 
regards the mass of the people) gene¬ 
rally among the poorest, though, in 
the midst of poverty, probably on the 
whole the most enjoying. Human life 
in those countries can be supported on 
so little, that the poor seldom sutler 
from anxiety, and in climates in which 
mere existence is a pleasure, the 
luxury which they prefer is that of 
repose. Energy, at the call of passion, 
they possess in abundance, but not 
that which is manifested in sustained 
and persevering labour: and as they 
seldom concern themselves enough 
about remote objects to establish good 
political institutions, the incentives to 
industry are further weakened by im¬ 
perfect protection of its fruits. Suc¬ 
cessful production, like most other 
kinds of success, depends more on the 
qualities of the human agents, than on 
the circumstances in which they work : 
and it is difficulties, not facilities, that 
nourish bodily and mental energy. 
Accordingly the tribes of mankind 
who have overrun and conquered 
others, and compelled them to labour 
for their benefit, have been mostly 
reared amidst hardship. They have 
either been bred in the forests of 
northern climates, or the deficiency ot 
natural hardships has been supplied, 
as among the Greeks and Romans, by 
the artificial ones of a rigid military 
discipline. From the time when the 
circumstances of modern society per¬ 
mitted the discontinuance of that 
discipline, the South has no longer 
produced conquering nations ; military 
vigour, as well as speculative thought 
and industrial energy, have all had 
their principal seats in the less 
favoured North. 
r.E. 


As the second, therefore, of the 
causes of superior productiveness, we 
may rank the greater energy of labour. 
By this is not to be understood occa¬ 
sional, but regular and habitual energy. 
No one undergoes, without murmur¬ 
ing, a greater amount of occasional 
fatigue and hardship, or has his bodily 
powers, and such faculties of mind as 
lie possesses, kept longer at their 
utmost stretch, than the North Ame¬ 
rican Indian; yet his indolence is 
proverbial, whenever he has a brief 
respite from the pressure of present 
wants. Individuals, or nations, do 
not differ so much in the efforts 
they are able and willing to make 
under strong immediate incentives, 
as in their capacity of present ex¬ 
ertion for a distant object, and in 
the thoroughness of their application 
to work on ordinary occasions. Some 
amount of these qualities is a necessary 
condition of any great improvement 
among mankind. To civilize a savage, 
he must be inspired with new wants 
and desires, even if not of a very ele¬ 
vated kind, provided that their gratifi¬ 
cation can be a motive to steady and 
regular bodily and mental exertion. 
If the negroes of Jamaica and De- 
merara, after their emancipation, had 
contented themselves, as it was pre¬ 
dicted they would do, with the neces¬ 
saries of life, and abandoned all labour 
beyond the little which in a tropical 
climate, with a thin population and 
abundance of the richest land, is 
sufficient to support existence, they 
would have sunk into a condition more 
barbarous, though less unhappy, than 
their previous state of slavery. The 
motive which was most relied on for 
inducing them to work was their love 
of fine clothes and personal ornaments. 
No one will stand up for this taste as 
worthy of being cultivated, and in 
most societies its indulgence tends to 
impoverish rather than to enrich ; but 
in the state of mind of the negroes it 
might have been the only incentive 
that could make them voluntarily 
undergo systematic labour, and so ac¬ 
quire or maintain habits of voluntary 
industry which may be converted to 
more valuable ends. In England, it ia 

F 




66 BOOK I. CHAPTER VII. S 4. 


not tlie desire of wealth that needs to 
be taught, but the use of wealth, and 
appreciation of the objects of desire 
which wealth cannot purchase, or for 
attaining which it is not required. 
Every real improvement in the cha¬ 
racter of the English, whether it 
consist in giving them higher aspira¬ 
tions, or only a juster estimate of the 
value of their present objects of desire, 
must necessarily moderate the ardour 
of their devotion to the pursuit of 
wealth. There is no need, however, 
that it should diminish the strenuous 
and business-like application to the 
matter in hand, which is found in the 
best English workmen, and is their 
most valuable quality. 

The desirable medium is one which 
mankind have not often known how to 
hit: when they labour, to do it with all 
their might, and especially with all 
their mind; but to devote to labour, 
for mere pecuniary gain, fewer hours 
in the day, fewer days in the year, and 
fewer years of life. 

§ 4. The third element which de¬ 
termines the productiveness of the 
labour of a community, is the skill and 
knowledge therein existing; whether 
it be the skill and knowledge of the 
labourers themselves, or of those who 
direct their labour. No illustration is 
requisite to show how the efficacy of 
industry is promoted by the manual 
dexterity of those w’ho perform mere 
routine processes; by the intelligence 
of those engaged in operations in 
which the mind has a considerable 
part; and by the amount of knowledge 
of natural powers and of the properties 
of objects, which is turned to the pur¬ 
poses of industry. That the produc¬ 
tiveness of the labour of a people is 
limited by tlieir knowledge of the arts 
of life, is self-evident; and that any 
progress in those arts, any improved 
application of the objects or powers of 
nature to industrial uses, enables the 
same quantity and intensity of labour 
to raise a greater produce. 

One principal department of these 
improvements consists in the invention 
and use of tools and machinery. The 
manner in which these serve to in 


crease production and to economize 
labour, needs not be specially detailed 
in a work like the present: it will be 
found explained and exemplified, in a 
manner at once scientific and popular, 
in Mr. Babbage’s well-known “Eco¬ 
nomy of Machinery and Manufac¬ 
tures.” An entire chapter of Mr. 
Babbage’s book is composed of in¬ 
stances of the efficacy of machinery in 
“ exerting forces too great for human 
power, and executing operations too 
delicate for human touch.” But to 
find examples of work which could not 
be performed at all by unassisted 
labour, we need not go so far. With¬ 
out pumps, worked by steam-engines or 
otherwise, the water which collects in 
mines could not in many situations be 
got rid of at all, and the mines, after 
being worked to a little depth, must be 
abandoned : without ships or boats the 
sea could never have been crossed; 
without tools of some sort, trees could 
not be cut down, nor rocks excavated; 
a plough, or at least a hoe, is necessary 
to any tillage of the ground. Very 
simple and rude instruments, however, 
are sufficient to render literally possible 
most works hitherto executed by man¬ 
kind; and subsequent inventions have 
chiefly served to enable the work to be 
performed in greater perfection, and, 
above all, with a greatly diminished 
quantity of labour: the labour thus 
saved becoming disposable for other 
employment. 

The use of machinery is far from 
being the only mode in which the 
effects of knowledge in aiding produc¬ 
tion are exemplified. In agriculture 
and horticulture, machinery is only 
now beginning to show that it can do 
anything of importance, beyond the 
invention and progressive improve¬ 
ment of the plough and a few other 
simple instruments. The greatest agri¬ 
cultural inventions have consisted in 
the direct application of more judicious 
processes to the land itself, and to the 
plants growing on it: such as rotation 
of crops, to avoid the necessity of 
leaving the land uncultivated for one 
season in every two or three ; improved 
manures, to renovate its fertility when 
exhausted by cropping; ploughing ana 






DEGREES OF PRODUCTIVENESS. 


draining tlie subsoil as well as the 
surface; conversion of bogs and marshes 
into cultivable land; such modes of 
pruning, and of training and propping 
up plants and trees, as experience has 
shown to deserve the preference; in the 
case of the more expensive cultures, 
planting the roots or seeds further 
apart, and more completely pulverizing 
the soil in which they are placed, &c. 
In manufactures and commerce, some 
of the most important improvements 
consist in economizing time; in making 
the return follow more speedily upon 
the labour and outlay. There are 
others of which the advantage consists 
in economy of material. 

§ 5. But the effects of the in¬ 
creased knowledge of a community in 
increasing its wealth, need the less 
illustration as they have become 
familiar to the most uneducated, from 
such conspicuous instances as railways 
and steam-ships. A thing not yet so 
well understood and recognised, is the 
economical value of the general diffu¬ 
sion of intelligence among the people. 
The number of persons fitted to direct 
and superintend any industrial enter¬ 
prise, or even to execute any process 
which cannot be reduced almost to an 
affair of memory and routine, is always 
far short of the demand; as is evident 
from the enormous difference between 
the salaries paid to such persons, and 
the wages of ordinary labour. The 
deficiency of practical good sense, 
which renders the majority of the la¬ 
bouring class such bad calculators— 
which makes, for instance, their do¬ 
mestic economy so improvident, lax, 
and irregular—must disqualify them 
for any but a low grade of intelligent 
labour, and render their industry far 
less productive than with equal energy 
it otherwise might be. The impor¬ 
tance, even in this limited aspect, of 
popular education, is well worthy of 
the attention of politicians, especially 
in England; since competent observers, 
accustomed to employ labourers of 
various nations, testify that in the 
workmen of other countries they often 
find great intelligence wholly apart 
Irom instruction, but that if an English 


67 

labourer is anything but a hewer of 
wood and a drawer of water, he is 
indebted for it to education, which in 
his case is almost always self-education. 
Mr. Escher, of Zurich, (an engineer 
and cotton manufacturer employing 
nearly two thousand working men of 
many different nations,) in his evidence 
annexed to the Report of the Poor 
Law Commissioners, in 1840, on the 
training of pauper children, gives a 
character of English as contrasted 
with Continental workmen, which all 
persons of similar experience will, I 
believe, confirm. 

“ The Italians’ quickness of percep¬ 
tion is shown in rapidly comprehending 
any new descriptions of labour put into 
their hands, in a power of quickly com¬ 
prehending the meaning of their em¬ 
ployer, of adapting themselves to new 
circumstances, much beyond what any 
other classes have. The French work¬ 
men have the like natural characteris¬ 
tics, only in a somewhat lower degree. 
The English, Swiss, German, and 
Dutch workmen, we find, have all much 
slower natural comprehension. As 
workmen only , the preference is un¬ 
doubtedly due to the English; because, 
as we find them, they are all trained 
to special branches, on which they have 
had comparatively superior training, 
and have concentrated all their 
thoughts. As men of business or of 
general usefulness, and as men with 
whom an employer would best like to 
be surrounded, I should, however, deci¬ 
dedly prefer the Saxons and the Swiss, 
but more especially the Saxons, be¬ 
cause they have had a very careful gen¬ 
eral education, which has extended 
their capacities beyond any special 
employment, and rendered them fit to 
take up, after a short preparation, any 
employment to which they may be 
called. If I have an English work¬ 
man engaged in the erection of a 
steam-engine, he will understand that, 
and nothing else; and for other cir¬ 
cumstances or other branches of me¬ 
chanics, however closely allied, he will 
be comparatively helpless to adapt him¬ 
self to all the circumstances that may 
arise, to make arrangements for them, 
and give sound advice or write clear 

F 2 



63 BOOK I. CHAPTER VII. § 5. 


statements and letters on his work 
in the various related branches of 
mechanics.” 

On the connexion between mental 
cultivation and moral trustworthiness 
in the labouring class, the same wit¬ 
ness says, “ The better educated work¬ 
men, we find, are distinguished by 
superior moral habits in every respect. 
In the first place, they are entirely so¬ 
ber ; they are discreet in their enjoy¬ 
ments, which are of a more rational 
and refined kind ; they have a taste 
for much better society, which they 
approach respectfully, and consequent ly 
find much readier admittance to it; 
they cultivate music ; they read ; they 
enjoy the pleasures of scenery, and 
make parties for excursions in the 
country; they are economical, and 
their economy extends beyond their 
own purse to the stock of their master ; 
they are, consequently, honest and 
trustworthy.” And in answer to a 
question respecting the English work¬ 
men, “ Whilst in respect to the work 
to which they have been specially 
trained they are the most skilful, they 
are in conduct the most disorderly, de¬ 
bauched, and unruly, and least respect¬ 
able and trustworthy of any nation 
whatsoever whom we have employed ; 
and in saying this, I express the expe¬ 
rience of every manufacturer on the 
Continent to whom I have spoken, and 
especially of the English manufactu¬ 
rers, who make the loudest complaints. 
These characteristics of depravity do 
not apply to the English workmen who 
have received an education, but attach 
to the others in the degree in which 
they are in want of it. When the un¬ 
educated English workmen are re¬ 
leased from the bonds of iron discipline 
in which they have been restrained by 
their employers in England, and are 
treated with the urbanity and friendly 
feeling which the more educated work¬ 
men on the Continent expect and re¬ 
ceive from their employers, they, the 
English workmen, completely lose their 
balance : they do not understand their 
position, and after a certain time be¬ 
come totally unmanageable and use¬ 
less ”* This result of observation is 

* The whole evidence of this intelligent 


borne out by experience in England 
itself. As soon as any idea of equal¬ 
ity enters the mind of an uneducated 
English working man, his head is 
turned by it. When he ceases to be 
servile, he becomes insolent. 

The moral qualities of the labourers 
are fully as important to the efficiency 
and worth of their labour, as the in¬ 
tellectual. Independently of the effects 
of intemperance upon their bodily and 
mental faculties, and of flighty un¬ 
steady habits upon the energy and con¬ 
tinuity of their work (points so easily 
understood as not to require being in¬ 
sisted upon), it is well worthy of medi¬ 
tation, how much of the aggregate 
effect of their labour depends on their 
trustworthiness. All the labour now 
expended in watching that they fulfil 
their engagement, or in verifying that 
they have fulfilled it, is so much with¬ 
drawn from the real business of pro¬ 
duction, to be devoted to a subsidiary 
function rendered needful not by the 
necessity of things, but by the dis¬ 
honesty of men. Nor are the greatest 
outward precautions more than very 
imperfectly efficacious, where, as is now 
almost invariably the case with hired 
labourers, the slightest relaxation of 
vigilance is an opportunity eagerly 
seized for eluding performance of their 
contract. The advantage to mankind 
of being able to trust one another, pen¬ 
etrates into every crevice and cranny 
of human life : the economical is per¬ 
haps the smallest part of it, yet even 
this is incalculable. To consider only 
the most obvious part of the waste of 
wealth occasioned to society by human 
improbity ; there is in all rich commu¬ 
nities a predatory population, who live 
by pillaging or over-reaching other 
people; their numbers cannot be 
authentically ascertained, but on the 
lowest estimate, in a country like 
England, it is very large. The sup¬ 
port of these persons is a direct bur¬ 
then on the national industry. The 
police, and the whole apparatus of pun¬ 
ishment, and of criminal and partly of 

and experienced employer of labour is de¬ 
serving of attention; as well as much testi¬ 
mony on similar points by other witnesses, 
contained in the same volume. 



DEGREES OF PRODUCTIVENESS. 69 


civil justice, are a second burthen ren¬ 
dered necessary by the first. The ex¬ 
orbitantly-paid profession of lawyers, 
so far as their work is not created by 
defects in the law of their own contri¬ 
ving, are required and supported prin¬ 
cipally by the dishonesty of mankind. 
As the standard of integrity in a com¬ 
munity rises higher, all these expenses 
become less. But this positive saving 
would be far outweighed by the im¬ 
mense increase in the produce of all 
kinds of labour, and saving of time and 
expenditure, which would be obtained 
if the labourers honestly performed 
what they undertake ; and by the in¬ 
creased spirit, the feeling of power 
and confidence, with which works of 
all sorts would be planned and carried 
on by those who felt that all whose aid 
was required would do their part faith¬ 
fully according to their contracts. Con¬ 
joint action is possible just in propor¬ 
tion as human beings can rely on each 
other. There are countries in Europe, 
of first-rate industrial capabilities, 
where the most serious impediment to 
conducting business concerns on a 
large scale, is the rarity of persons who 
are supposed fit to be trusted with the 
receipt and expenditure of large sums 
of money. There are nations whose 
commodities are looked shily upon by 
merchants, because they cannot depend 
on finding the quality of the article 
conformable to that of the sample. 
Such short-sighted frauds are far from 
unexampled in English exports. Every 
one has heard of “ devil’s dustand 
among other instances given by Mr. 
Babbage, is one in which a branch of 
export trade was for a long time ac¬ 
tually stopped by the forgeries and 
frauds which had occurred in it. On 
the other hand the substantial advan¬ 
tage derived in business transactions 
from proved trustworthiness, is not less 
remarkably exemplified in the same 
work. “ At one of our largest towns, 
sales and purchases on a very exten¬ 
sive scale are made daily in the course 
of business without any of the parties 
ever exchanging a written document.” 
Spread over a year’s transactions, how 
great a return, in saving of time, 
trouble, and expense, is brought in to 


the producers and dealers of such a 
town from their own integrity. “ The 
influence of established character in 
producing confidence operated in a 
very remarkable manner at the time of 
the exclusion of British manufactures 
from the Continent during the last 
war. One of our largest establish¬ 
ments had been in the habit of doing 
extensive business with a house in the 
centre of Germany : but on the closing 
of the Continental ports against our 
manufactures, heavy penalties were 
inflicted on all those who contravened 
the Berlin and Milan decrees. The 
English manufacturer continued, never¬ 
theless, to receive orders, with direc¬ 
tions how to consign them, and appoint¬ 
ments for the time and mode of pay¬ 
ment, in letters, the handwriting of 
which was known to him, but which 
were never signed except by the 
Christian name of one of the firm, and 
even in some instances they were 
without any signature at all. These 
orders were executed, and in no in¬ 
stance was there the least irregularity 
in the payments.”* 

* Some minor instances noticed by Mr. 
Babbage may be cited in further illustration 
of the waste occasioned to society through 
the inability of its members to trust one 
another. 

“ The cost to the purchaser is the price he 
pays for any article, added to the cost of 
verifying the fact of its having that degree 
of goodness for which he contracts. In some 
cases, the goodness of the article is evident 
on mere inspection; and in those cases there 
is not much difference of price at different 
shops. The goodness of loaf sugar, for in¬ 
stance, can be discerned almost at a glance ; 
and the consequence is, that the price is so 
uniform, and the profit upon it so small, that 
no grocer is at all anxious to sell it ; whilst 
on the other hand, tea, of which it is exceed¬ 
ingly difficult to judge, and which can be 
adulterated by mixture so as to deceive the 
skill even of a practised eye, has a great 
variety of different prices, and is that article 
which every grocer is most anxious to sell to 
his customers. The difficulty and expense 
of verification are in some instances so great 
as to justify the deviation from well-estab¬ 
lished principles. Thus it is a general maxim 
that Government can purchase any article 
at a cheaper rate than that at which they 
can manufacture it themselves. But it has, 
nevertheless, been considered more econo¬ 
mical to build extensive flour-mills (such as 
those at Deptford), and to grind their own 
corn, than to verify each sack of purchased 
flour, and to employ persons in devising me- 



70 BOOK I. CHAPTER VII. § 6. 


§ 6. Among the secondary causes 
which determine the productiveness of 
productive agents, the most important 
is Security. By security I mean the 
completeness of the protection which 
society affords to its members. This 
consists of protection by the govern¬ 
ment, and protection against the go¬ 
vernment. The latter is the more 
important. Where a person known to 
possess anything worth taking away, 
can expect nothing hut to have it torn 
from him, with every circumstance of 
tyrannical violence, by the agents of a 
rapacious government, it is not likely 
that many will exert themselves to 
produce much more than necessaries. 
This is the acknowledged explanation 
of the poverty of many fertile tracts of 
Asia, which were once prosperous and 
populous. From this to the degree of 
becurity enjoyed in the best governed 

thods of detecting the new modes of adulte¬ 
ration which might be continually resorted 
to.” A similar want of confidence might 
deprive a nation, such as the United States, of 
a large export trade in flour. 

Again : “ Some years since, a mode of pre¬ 
paring old clover and trefoil 6eeds by a pro¬ 
cess called doctoring became so prevalent as 
to excite the attention of the House of Com¬ 
mons. It appeared in evidence before a 
Committee, that the old seed of the white 
clover was doctored by first wetting it slightly, 
and then drying it by the fumes of burning 
sulphur; and that the red clover seed had its 
colour improved by shaking it in a sack with 
a small quantity of indigo ; but this being 
detected after a time, the doctors then used 
a preparation of logwood, fined by a little 
copperas, and sometimes by verdigris; thus 
at once improving the appearance of the old 
seed, and diminishing, if not destroying, its 
vegetative power, already enfeebled by age. 
Supposing no injury had resulted to good 
seed so prepared, it was proved that, from 
the improved appearance, the market price 
would be enhanced by this process from five 
to twenty-five shillings a hundred-weight. 
But the greatest evil arose from the circum¬ 
stance of these processes rendering old and 
worthless seed equal in appearance to the 
best One witness had tried some doctored 
seed, and found that not above one grain in 
a hundred grew, and that those which did 
vegetate died away aftei’wards: whilst about 
eighty or ninety per cent of good seed usually 
grows. The seed so treated was sold to 
retail dealers in the country, who of course 
endeavoured to purchase at the cheapest 
rate, and from them it got into the hands of 
the farmers, neither of these classes being ca¬ 
pable of distinguishing the fraudulent from 
the genuine seed. Many cultivators in conse¬ 
quence diminished their consumption of the 


parts of Europe, there are numerous 
gradations. In many provinces of 
France, before the Revolution, a vicious 
system of taxation on the land, and 
still more the absence of redress against 
the arbitrary exactions which were 
made under colour of the taxes, ren¬ 
dered it the interest of every cultivator 
to appear poor, and therefore to culti¬ 
vate badly. The only insecurity which 
is altogether paralyzing to the active 
energies of producers, is that arising 
from .the government, or from persons 
invested with its authority. Against 
all other depredators there is a hope of 
defending oneself. Greece and the 
Greek colonies in the ancient world, 
Flanders and Italy in the Middle Ages, 
by no means enjoyed what any one 
with modern ideas would call security: 
the state of society was most unsettled 
and turbulent; person and property 

article?, and others were obliged to pay a 
higher price to those who had skill to distin¬ 
guish the mixed seed, and who had integrity 
and character to prevent them from dealing 
in it.” 

The same writer states that Irish flax, 
though in natural quality inferior to none, 
sells, or did lately sell, in the market at a 
penny to twopence per pound less than 
foreign or British flax; part of the ditference 
arising from negligence in its preparation, 
but part from the cause mentioned in the 
evidence of Mr. Corry, many years Secretary 
to the Irish Linen Board: “ The owners of 
the flax, who are almost always people in the 
lower classes of life, believe that they can 
best advance their own interests by imposing 
on the buyers. Flax being sold by weight, 
various expedients are used to increase it; 
and every expedient is injurious, particularly 
the damping of it; a very common practice, 
which makes the flax afterwards heat. The 
inside of every bundle (and the bundles all 
vary in bulk) is often full of pebbles, or dirt 
of various kinds, to increase the weight. In 
this state it is purchased and exported to 
Great Britain.” 

It was given in evidence before a Com¬ 
mittee of the House of Commons that the 
lace trade at Nottingham had greatly fallen 
off, from the making of fraudulent and baid 
articles : that a kind of lace called »• ingle- 
press was manufactured,” (I still quote Mr. 
Babbage) “ which, although good to the eye, 
became nearly spoiled in washing by the 
slipping of the threads ; that not one person 
in a thousand could distinguish the difference 
between single-press and double-press lace; 
that even workmen and manufacturers were 
obliged to employ a magnifying-glass for that 
purpose; and that in another similar article, 
called warp-lace, such aid was essential.” 



COMBINATION OF LABOUR. 


were exposed to a thousand dangers. 
But they were free countries; they 
were in general neither arbitrarily op¬ 
pressed, nor systematically plundered 
by their governments. Against other 
enemies the individual energy which 
their institutions called forth, enabled 
them to make successful resistance: 
their labour, therefore, was eminently 
productive, and their riches, while they 
remained free, were constantly on the 
increase. The Roman despotism, put¬ 
ting an end to wars and internal con¬ 
flicts throughout the empire, relieved 
the subject population from much of 
the former insecurity: but because it 
left them under the grinding yoke of 
its own rapacity, they became ener¬ 
vated and impoverished, until they 
were an easy prey to barbarous but 
free invaders. They would neither 
fight nor labour, because they were no 
longer suffered to enjoy that for which 
they fought and laboured. 

Much of the security of person and 
property in modern nations is the effect 
of manners and opinion rather than of 
law. There are, or lately were, coun¬ 
tries in Europe where the monarch 
was nominally absolute, but where, 
from the restraints imposed by estab¬ 
lished usage, no subject felt practically 
in the smallest danger of having his 
possessions arbitrarily seized or a con¬ 
tribution levied on them by the govern¬ 
ment. There must, however, be in 
such governments much petty plunder 
and other tyranny by subordinate 
agents, for which redress is not ob¬ 
tained, owing to the want of publicity 
which is the ordinary character of 
absolute governments. In England the 
people are tolerably well protected, both 
by institutions and manners, against 
the agents of government; but, for the 


71 

security they enjoy against other evil¬ 
doers, they are very little indebted to 
their institutions. The laws cannot be 
said to afford protection to property, 
when they afford it only at such a cost 
as renders submission to injury in 
general the better calculation. The 
security of property in England is 
owing (except as regards open violence) 
to opinion, and the fear of exposure, 
much more than to the direct operation 
of the law and the courts of justice. 

Independently of all imperfection in 
the bulwarks which society purposely 
throws round what it recognises as 
property, there are various other modes 
in which defective institutions impede 
the employment of the productive re¬ 
sources of a country to the best ad¬ 
vantage. We shall have occasion for 
noticing many of these in the progress 
of our subject. It is sufficient here to 
remark, that the efficiency of industry 
may be expected to be great, in pro¬ 
portion as the fruits of industry are 
insured to the person exerting it: and 
that all social arrangements are con¬ 
ducive to useful exertion, according as 
they provide that the reward of every 
one for his labour shall be proportioned 
as much as possible to the benefit which 
it produces. All laws or usages which 
favour one class or sort of persons to 
the disadvantage of others; which 
chain up the efforts of any part of the 
community in pursuit of their own 
good, or stand between those efforts 
and their natural fruits—are (indepen¬ 
dently of all other grounds of condem¬ 
nation) violations of the fundamental 
principles of economical policy ; tend¬ 
ing to make the aggregate productive 
powers of the community productive 
in a less degree than they would other¬ 
wise be. 


CHAPTER VIII. 


OF CO-OPERATION, OR THE COMBINATION OF LABOUR. 


§ 1. In the enumeration of the 
circumstances which promote the pro¬ 
ductiveness of labour, we have left 


one untouched, which, because of its 
importance, and of the many topics of 
discussion which it involves, requires 





72 BOOK I. CHAPTER VIII. § 1 


to be treated apart. This is, co-opera¬ 
tion, or the combined action of numbers. 
Of this great aid to production, a 
single department, known by the name 
of Division of Labour, has engaged a 
large share of the attention of political 
economists; most deservedly indeed, 
but to the exclusion of other cases and 
exemplifications of the same compre¬ 
hensive law. Mr. Wakefield was, I 
believe, the first to point out, that a 
part of the subject had, with injurious 
effect, been mistaken for the whole; 
that a more fundamental principle lies 
beneath that of the division of labour, 
and comprehends it. 

Co-operation, he observes,* is “of 
two distinct kinds: first, such co¬ 
operation as takes place when several 
persons help each other in the same em¬ 
ployment ; secondly, such co-operation 
as takes place when several persons 
help each other in different employ¬ 
ments. These may be termed Simple 
Co-operation and Complex Co-operation. 

“ The advantage of simple co-opera¬ 
tion is illustrated by the case of two 
greyhounds running together, which, 
it is said, will kill more hares than four 
greyhounds running separately. In 
a vast number of simple operations 
performed by human exertion, it is 
quite obvious that two men working 
together will do more than four, or 
four times four men, each of whom 
should work alone. In the lifting of 
heavy weights, for example, in the 
felling of trees, in the sawing of timber, 
in the gathering of much hay or corn 
during a short period of fine weather, 
in draining a large extent of land 
during ilie short season when such a 
work may be properly conducted, in 
the pulling of ropes on board ship, in 
the rowing of large boats, in some 
mining operations, in the erection of a 
scaffolding for building, and in the 
breaking of stones for the repair of a 
road, so that the whole of the road 
shall always be kept in good order ; in 
all these simple operations, and thou¬ 
sands more, it is absolutely necessary 
that many persons should work to¬ 
gether, at the same time, in the same 

* Note to Wakefield’s edition of Adam 
Smith, vol. i. p. 2fi. 


place, and in the same way. The 
savages of New Holland never help 
each other, even in the most simple 
operations; and their condition is 
hardly superior, in some respects it 
is inferior, to that of the wild animals 
which they now and then catch. Let 
any one imagine that the labourers of 
England should suddenly desist from 
helping each other in simple employ¬ 
ments, and he will see at once the 
prodigious advantages of simple co¬ 
operation. In a countless number of 
employments, the produce of labour is, 
up to a certain point, in proportion to 
such mutual assistance amongst the 
workmen. This is the first step in 
social improvement.” The second is, 
when “ one body of men having com¬ 
bined their labour to raise more food 
than they require, another body of 
men are induced to combine their 
labour for the purpose of producing 
more clothes than they require, and 
with those clothes buying the surplus 
food of the other body of labourers; 
while, if both bodies together have 
produced more food and clothes than 
they both require, both bodies obtain, 
by means of exchange, a proper 
capital for setting more labourers to 
work in their respective occupations.” 
To simple co-operation is thus super- 
added what Mr. Wakefield terms 
Complex Co-operation. The one is 
the combination of several labourers 
to help each other in the same set of 
operations; the other is the combina¬ 
tion of several labourers to help one 
another by a division of operations. 

There is “ an important distinction 
between simple and complex co-opera¬ 
tion. Of the former, one is always 
conscious at the time of practising it: 
it is obvious to the most ignorant and 
vulgar eye. Of the latter, but a very few 
of the vast numbers who practise it are 
in any degree conscious. The cause of 
this distinction is easily seen. When 
several men are employed in lifting 
the same weight, or pulling the same 
rope, at the same time, and in the 
same place, there can be no sort of 
doubt that they co-operate with each 
other; the fact is impressed on the 
mind by the mere sense of sight; but 



COMBINATION OF LABOUR. 73 


when several men, or bodies of men, 
are employed at different times and 
places, and in different pursuits, their 
co-operation with each other, though 
it may be quite as certain, is not so 
readily perceived as in the other case : 
in order to perceive it, a complex ope¬ 
ration of the mind is required.” 

In the present state of society the 
breeding and feeding of sheep is the 
occupation of one set of people, dress¬ 
ing the wool to prepare it for the 
spinner is that of another, spinning it 
into thread of a third, weaving the 
thread into broadcloth of a fourth, 
dyeing the cloth of a fifth, making it 
into a coat of a sixth, without counting 
the multitude of carriers, merchants, 
factors, and retailers put in requisition 
at the successive stages of this progress. 
All these persons, without knowledge of 
one another or previous understanding, 
co-operate in the production of the 
ultimate result, a coat. But these are 
far from being all who co-operate in it; 
for each of these persons requires food, 
and many other articles of consump¬ 
tion, and unless he could have relied 
that other people would produce these 
for him, he could not have devoted his 
whole time to one step in the succes¬ 
sion of operations which produces one 
single commodity, a coat. Every 
person who took part in producing 
food or erecting houses for this series 
of producers, has, however uncon¬ 
sciously on his part, combined his 
labour with theirs. It is by a real, 
though unexpressed, concert, “ that 
the body who raise more food than 
they want, can exchange with the 
body who raise more clothes than they 
want; and if the two bodies w r ere sepa¬ 
rated, either by distance or disincli¬ 
nation—unless the two bodies should 
virtually form themselves into one, for 
the common object of raising enough 
food and clothes for the whole—they 
could not divide into two distinct parts 
the whole operation of producing a 
sufficient quantity of food and clothes.” 

§ 2. The influence exercised on 
production by the separation of em¬ 
ployments, is more fundamental than, 
from the mode in which the subject is 


usually treated, a reader might be in¬ 
duced to suppose. It is not merely 
that when the production of different 
things becomes the sole or principal 
occupation of different persons, a much 
greater quantity of each kind of article 
is produced. The truth is much be¬ 
yond this. Without some separation 
of employments, very few things would 
be produced at all. 

Suppose a set of persons, or a 
number of families, all employed 
precisely in the same manner; each 
family settled on a piece of its own 
land, on which it grows by its labour 
the food required for its own suste¬ 
nance, and as there are no persons to 
buy any surplus produce where all are 
producers, each family has to produce 
within itself whatever other articles 
it consumes. In such circumstances, 
if the soil was tolerably fertile, and 
population did not tread too closely on 
the heels of subsistence, there would 
be, no doubt, some kind of domestic 
manufactures ; clothing for the family 
might perhaps be spun and woven 
within it, by the labour probably of the 
women (a first step in the separation 
of employments) ; and a dwelling of 
some sort would be erected and kept 
in repair by their united labour. But 
beyond simple food (precarious, too, 
from the variations of the seasons), 
coarse clothing, and very imperfect 
lodging, it would be scarcely possible 
that the family should produce any¬ 
thing more. They would, in general, 
require their utmost exertions to ac- 
comp'ish so much. Their power even 
of extracting food from the soil would 
be kept within narrow limits by the 
quality of their tools, which would 
necessarily be of the most wretched 
description. To do almost anything 
in the way of producing for themselves 
articles of convenience or luxury, would 
require too much time, and, in many 
cases, their presence in a different 
place. Very few kinds of industry, 
therefore, would exist; and that which 
did exist, namely the production of 
necessaries, would be extremely in¬ 
efficient, not solely from imperfect 
implements, but because, when the 
ground and the domestic industry fed 



74 BOOK I. CHAPTER VIII. § 3. 


by it had been made to supply the 
necessaries of a single family in tole¬ 
rable abundance, there would be little 
motive, while the numbers of the 
family remained the same, to make 
either the land or the labour produce 
more. 

But suppose an event to occur, which 
would amount to a revolution in the 
circumstances of this little settlement. 
Suppose that a company of artificers, 
provided with tools, and with food 
sufficient to maintain them for a year, 
arrive in the country and establish 
themselves in the midst of the popu¬ 
lation. These new settlers occupy 
themselves in producing articles of use 
or ornament adapted to the taste of a 
simple people ; and before their food is 
exhausted they have produced these in 
considerable quantity, and are ready 
to exchange them for more food. The 
economical position of the landed popu¬ 
lation is now most materially altered. 
They have an opportunity given them 
of acquiring comforts and luxuries. 
Things which, while they depended 
solely on their own labour, they never 
could have obtained, because they 
could not have produced, are now ac¬ 
cessible to them if they can succeed 
in producing an additional quantity 
of food and necessaries. They are 
thus incited to increase the produc¬ 
tiveness of their industry. Among 
the conveniences for the first time 
made accessible to them, better tools 
are probably one ; and apart from this, 
they have a motive to labour more 
assiduously, and to adopt contrivances 
for making their labour more effectual. 
By these means they Will generally 
succeed in compelling their land to 
produce, not only food for themselves, 
but a surplus for the new comers, 
wherewith to buy from them the pro¬ 
ducts of their industry. The new 
settlers constitute what is called a 
market for surplus agricultural pro¬ 
duce : and their arrival has enriched 
the settlement not only by the manu¬ 
factured articles which they produce, 
but by the food which would not have 
been produced unless they had been 
there to consume it. 

There is no inconsistency between 


this doctrine, and the proposition we 
before maintained, that a market for 
commodities does not constitute em¬ 
ployment for labour.* The labour of 
the agriculturists was already pro¬ 
vided with employment; they are not 
indebted to the demand of the new 
comers for being able to maintain 
themselves. What that demand does 
for them is, to call their labour into 
increased vigour and efficiency; to 
stimulate them, by new motives, to 
new exertions. Neither do the new 
comers owe their maintenance and 
employment to the demand of the agri¬ 
culturists : with a year’s subsistence in 
store, they could have settled side by 
side with the former inhabitants, and 
produced a similar scanty stock of 
food and necessaries. Nevertheless, we 
see of what supreme importance to the 
productiveness of the labour of pro¬ 
ducers, is the existence of other pro¬ 
ducers within reach, employed in a 
different kind of industry. The power 
of exchanging the products of one kind 
of labour for those of another, is a 
condition, but for which, there would 
almost always be a smaller quantity of 
labour altogether. When a new mar¬ 
ket is opened for any product of in¬ 
dustry, and a greater quantity of the 
article is consequently produced, the 
increased production is not always ob¬ 
tained at the expense of some other 
product; it is often a new creation, the 
result of labour which would otherwise 
have remained unexerted; or of assist¬ 
ance rendered to labour by improve¬ 
ments or by modes of co-operation to 
which recourse would not have been 
had if an inducement had not been 
offered for raising a larger produce. 

§ 3. From these considerations it 
appears that a country will seldom 
have a productive agriculture, unless it 
has a large town population, or the 
only available substitute, a large ex¬ 
port trade in agricultural produce to 
supply a population elsewhere. I use 
the phrase town population for short¬ 
ness, to imply a population non-agri- 
cultural; which will generally be 
collected in towns or latge villages, for 
* Supra, pp. 49—55. 



COMBINATION OF LABOUR. 


the sake of combination of labour. 
The application of this truth by Mr. 
Wakefield to the theory of colonization, 
has excited much attention, and is 
doubtless destined to excite much 
more. It is one of those great practical 
discoveries, which, once made, appear 
so obvious that the merit of making 
them seems less than it is. Mr. 
Wakefield was the first to point out 
that the mode of planting new settle¬ 
ments, then commonly practised — 
setting down a number of families side 
by side, each on its piece of land, all 
employing themselves in exactly the 
same manner,—though in favourable 
circumstances it may assure to those 
families a rude abundance of mere 
necessaries, can never be other than 
unfavourable to gi’eat production or 
rapid growth: and bis system con¬ 
sists of arrangements for securing that 
every colony shall have from the first 
a town population, bearing due propor¬ 
tion to its agricultural, and that the 
cultivators of the soil shall not be so 
widely scattered as to be deprived by 
distance, of the benefit of that town 
population as a market for their pro¬ 
duce. The principle on -which the 
scheme is founded, does not depend on 
any theory respecting the superior pro¬ 
ductiveness of land held in large 
portions, and cultivated by hired la¬ 
bour. Supposing it true that land 
yields the greatest produce when 
divided into small properties and cul¬ 
tivated by peasant proprietors, a town 
population would be just as necessary 
to induce those proprietors to raise 
that larger produce: and if they w r ere 
too far from the nearest seat of non- 
agricultural industry to use it as a 
market for disposing of their surplus, 
and thereby supplying their other 
wants, neither that surplus nor any 
equivalent for it would, generally 
speaking, be produced. 

It is, above all, the deficiency of 
town population which limits the pro¬ 
ductiveness of the industry of a country 
like India. The agriculture of India is 
conducted entirely on the system of 
small holdings. There is, however, a 
considerable amount of combination of 
labour. The village institutions and 


75 

customs, which are the real framework 
of Indian society, make provision for 
joint action in the cases in which it is 
seen to be necessary; or where they 
fail to do so, the government (when 
tolerably well administered) steps in, 
and by an outlay from the revenue, 
executes by combined labour the tanks, 
embankments, and works of irrigation, 
which are indispensable. The imple¬ 
ments and processes of agriculture are 
however so wretched, that the produce 
of the soil, in spite of great natural 
fertility and a climate higlily favourable 
to vegetation, is miserably small: and 
the land might be made to yield food 
in abundance for many more than the 
present number of inhabitants, without 
departing from the system of small 
holdings. But to this the stimulus is 
wanting, which a large town popula¬ 
tion, connected with the rural districts 
by easy and unexpensive means of 
communication, would afford. That 
town population, again, does not grow 
up, because the few wants and unas¬ 
piring spirit of the cultivators (joined 
until lately with great insecurity of 
property, from military and fiscal ra¬ 
pacity) prevent them from attempting 
to become consumers of town produce. 
In these circumstances the best chance 
of an early development of the produc¬ 
tive resources of India, consists in the 
rapid growth of its export of agricul¬ 
tural produce (cotton, indigo, sugar, 
coffee, &c.) to the markets of Europe. 
The producers of these articles are 
consumers of food supplied by their 
fellow-agriculturists in India ; and the 
market thus opened for surplus food 
will, if accompanied by good govern¬ 
ment, raise up by degrees more ex¬ 
tended wants and desires, directed 
either towards European commodities, 
or towards things which will require 
for their production in India a larger 
manufacturing population. 

§ 4. Thus far of the separation of 
employments, a form of the combina¬ 
tion of labour without which there can¬ 
not be the first rudiments of industrial 
civilization. But when this separation 
is thoroughly established ; when it has 
become the general practice for each 




76 BOOK I. CHAPTER VITI. § 4. 


producer to supply many others with 
one commodity, and to be supplied by 
others with most of the things which 
he consumes; reasons not less real, 
though less imperative, invite to a 
further extension of the same principle. 
It is found that the productive power 
of labour is increased by carrying the 
separation further and further; by 
breaking down more and more every 
process of industry into parts, so that 
each labourer shall confine himself to 
an ever smaller number of simple ope¬ 
rations. And thus, in time, arise those 
remarkable cases of what is called the 
division of labour, with which all 
readers on subjects of this nature are 
familiar. Adam Smith’s illustration 
from pin-making, though so well 
known, is so much to the point, that I 
will venture once more to transcribe it. 
“The business of making a pin is 
divided into about eighteen distinct 
operations. One man draws out the 
wire, another straights it, a third cuts 
it, a fourth points it, a fifth grinds it at 
the top for receiving the head; to 
make the head requires two or three 
distinct operations ; to put it on, is a 
peculiar business ; to whiten the pins 
is another; it is even a trade by itself 

to put them into the paper. 

I have seen a small manufactory where 
ten men only were employed, and 
where some of them, consequently, per¬ 
formed two or three distinct operations. 
But though they were very poor, and 
therefore but indifferently accommo¬ 
dated with the necessaiy machinery, 
they could, when they exerted them¬ 
selves, make among them about twelve 
pounds of pins in a day. There are in 
a pound upwards of four thousand pins 
of a middling size. Those ten persons, 
therefore, could make among them up¬ 
wards of forty-eight thousand pins in a 
day. Each person, therefore, making 
a tenth part of forty-eight thousand 
pins, might be considered as making 
four thousand eight hundred pins in a 
day. But if they had all wrought 
separately and independently, and with¬ 
out any of them having been educated 
to this peculiar business, they cer¬ 
tainly could not each of them have made 
twenty, perhaps not one pin in a day.’’ 


M. Say furnishes a still stronger 
example of the effects of division 
of labour—from a not very important 
branch of industry certainly, the manu¬ 
facture of playing cards. “ It is said 
by those engaged in the business, that 
each card, that is, a piece of paste¬ 
board of the size of the hand, before 
being ready for sale, does not undergo 
fewer than seventy operations, every 
one of which might be the occupation 
of a distinct class of workmen. And 
if there are not seventy classes of work¬ 
people in each card manufactory, it is 
because the division of labour is not 
carried so far as it might be ; because 
the same workman is charged with 
two, three, or four distinct operations. 
The influence of this distribution of 
employments is immense. I have seen 
a card manufactory where thirty work¬ 
men produced daily fifteen thousand 
five hundred cards, being above five 
hundred cards for each labourer ; and 
it may be presumed that, if each of 
these workmen were obliged to perform 
all the operations himself, even suppo¬ 
sing him a practised hand, he would 
not perhaps complete two cards in a 
day : and the thirty workmen, instead 
of fifteen thousand five hundred cards, 
would make only sixty.”* 

In watchmaking, as Mr. Babbage 
observes, “ it was stated in evidence 
before a Committee of the House of 
Commons, that there are a hundred 
and two distinct branches of this art, 
to each of which a boy may be put ap¬ 
prentice ; and that he only learns his 
master’s department, and is unable, 
after his apprenticeship has expired, 
without subsequent instruction, to 
work at any other branch. The watch- 
finisher, whose business it is to put 
together the scattered parts, is the only 
one, out of the one hundred and two 
persons, who can work in any other de¬ 
partment than his own.”f 

* Say, Cours d’Economie Politique Pra¬ 
tique, vol. i. p. 340. 

It is a remarkable proof of the economy of 
labour occasioned by this minute division of 
occupations, that an article, the production 
of which is the l’esult of such a multitude of 
manual operations, can be sold for a trifling 
sum. 

f Economy of Machinery and Manufac¬ 
tures , 3rd Edition, p. 201. 



COMBINATION OF LABOUR. 


§ 5. The causes of the increased 
efficiency given to labour by the divi¬ 
sion of employments are some of them 
too familiar to require specification ; 
but it is worth while to attempt a com¬ 
plete enumeration of them. By Adam 
►Smith they are reduced to three. 
“ First, the increase of dexterity in 
every particular workman ; secondly, 
the saving of the time which is com¬ 
monly lost in passing from one species 
of work to another ; and lastly, the in¬ 
vention of a great number of machines 
which facilitate and abridge labour, 
and enable one man to do the work of 
many.” 

Of these, the increase of dexterity of 
the individual workman is the most ob¬ 
vious and universal. It does not fol¬ 
low that because a thing has been done 
oftener it will be done better. That 
depends on the intelligence of the 
workman, and on the degree in which 
his mind works along with his hands. 
But it will be done more easily. The 
organs themselves acquire greater 
power: the muscles employed grow 
stronger by frequent exercise, the 
sinews more pliant, and the mental 
powers more efficient, and less sensible 
of fatigue. What can be done easily 
has at least a better chance of being 
done well, and is sure to be done more 
expeditiously. What was at first done 
slowly comes to be done quickly ; what 
was at first done slowly with accuracy 
is at last done quickly with equal ac¬ 
curacy. This is as true of ment al opera¬ 
tions as of bodily. Even a child, after 
much practice, sums up a column of 
figures with a rapidity which resembles 
intuition. The act of speaking any 
language, of reading fluently, of play¬ 
ing music at sight, are cases as remark¬ 
able as they are familiar. Among 
bodily acts, dancing, gymnastic exer¬ 
cises, ease and brilliancy of execution 
on a musical instrument, are examples 
of the rapidity and facility acquired by 
•repetition. In simpler manual opera¬ 
tions, the effect is of course still sooner 
produced. “ The rapidity,” Adam 
►Smith observes, “with which some of 
the operations of certain manufactures 
are performed, exceeds what the human 
hand could, by those who have never seen 


77 

them, be supposed capable of acquir¬ 
ing.’’* This skill is, naturally, at¬ 
tained after shorter practice, in propor¬ 
tion as the division of labour is more 
minute; and will not be attained in 
the same degree at all, if the workman 
has a greater variety of operations to 
execute than allows of a sufficiently 
frequent repetition of each. The ad¬ 
vantage is not confined to the greater 
efficiency ultimately attained, but in¬ 
cludes also the diminished loss of time, 
and waste of material, in learning the 
art. “ A certain quantity of material,” 
says Mr. Babbage,f “ will in all cases 
be consumed unprofitabiy, or spoiled, 
by every person who learns an art; 
and as he applies himself to each new 
process, he will waste some of the raw 
material, or of the partly manufactured 
commodity. But if each man commits 
this waste in acquiring successively 
every process, the quantity of waste 
will be much greater than if each per¬ 
son confine his attention to one process.’ ’ 
And in general each will be much 
sooner qualified to execute! his one pro¬ 
cess, if he be not distracted while learn¬ 
ing it, by the necessity of learning 
others. 

The second advantage enumerated 
by Adam Smith as arising from the 
division of labour, is one on which I 
cannot help thinking that more stress 
is laid by him and others than it 
deserves. To do full justice to 
his opinion, I will quote his own 
exposition of it. “ The advantage 
which is gained by saving the time 

* “ In astronomical observations, the 
senses of the operator are rendered so acute 
by habit, that he can estimate differences of 
time to the tenth of a second; and adjust his 
measuring instrument to graduations of 
which five thousand occupy only an inch. 
It is the 3 ame throughout the commonest 
processes of manufacture. A child who 
fastens on the heads of pins will repeat an 
operation requiring several distinct motions 
of the muscles one hundred times a minute 
for several successive hours. In a recent 
Manchester paper it was stated that a 
peculiar sort of twist or ‘gimp,’ which cost 
three shillings making when first introduced, 
was now manufactured for one penny; and 
this not, as usually, by the invention of a 
new machine, but solely through the in¬ 
creased dexterity of the workman.’’—JScfi/i- 
burqh, Review for January 1819, p. 81. 
t Page 171. 




BOOK I. CHAPTER VIII. § 5. 


78 

commonly lost in passing from one 
sort of work to another, is much 
greater than we should at first view be 
apt to imagine it. It is impossible to 
pass very quickly from one kind of 
work to another, that is carried on in 
a different place, and with quite differ¬ 
ent. tools. A country weaver, who 
cultivates a small farm, must lose a 
good deal of time in passing from his 
loom to the field, and from the field, to 
liis loom. When the two trades can 
he carried on in the same workhouse, 
the loss of time is no doubt much less. 
It is even in this case, however, very 
considerable. A man commonly saun¬ 
ters a little in turning his hand from 
one sort of employment to another. 
When he first begins the new work, 
he is seldom very keen and hearty; 
his mind, as they say, does not go to 
it, and for some time he rather trifles 
than applies to good purpose. The 
habit of sauntering and of indolent 
careless application, which is naturally, 
or rather necessarily acquired by every 
country workman who is obliged to 
change his work and his tools every 
half^ hour, and to apply his hand in 
twenty different ways almost every 
day of his life, renders him almost 
always slothful and lazy, and incapable 
of any vigorous application even on the 
most pressing occasions.” This is 
surely a most exaggerated description 
of the inefficiency of country labour, 
where it has any adequate motive to 
exertion. Few workmen change their 
work and their tools oftener than a 
gardener; is he usually incapable of 
vigorous application? Many of the 
higher description of artisans have to 
perform a great multiplicity of opera¬ 
tions with a variety of tools. They do 
not execute each of these with the 
rapidity with which a factory work¬ 
man performs his single operation; 
but they are, except in a merely 
manual sense, more skilful labourers, 
and in all senses whatever more ener¬ 
getic. 

Mr. Babbage, following in the track 
of Adam Smith, says, “ When the 
human hand, or the human head, has 
been for some time occupied in any 
kind of work, it cannot instantly 


change its employment with full effect. 
The muscles of the limbs employed 
have acquired a flexibility during their 
exertion, and those not in action a 
stiffness during rest, which renders 
every change slow and unequal in the 
commencement. Long habit also pro¬ 
duces in the muscles exercised a capa¬ 
city for enduring fatigue to a much 
greater degree than they could support 
under other circumstances. A similar 
result seems to take place in any change 
of mental exertion; the attention 
bestowed on the new subject not being 
so perfect at first as it becomes after 
some exercise. The employment of 
different tools in the successive pro¬ 
cesses, is another cause of the loss of 
time in changing from one operation 
to another. If these tools are simple, 
and the change is not frequent, the 
loss of time is not considerable ; but 
in many processes of the arts, the tools 
are of great delicacy, requiring accu¬ 
rate adjustment every time they are 
used; and in many cases, the time 
employed in adjusting bears a large 
proportion to that employed in using 
the tool. The sliding-rest, the divi¬ 
ding and the drilling engine are of this 
kind: and hence, in manufactories of 
sufficient extent, it is found to be good 
economy to keep one machine con¬ 
stantly employed in one kind of work : 
one lathe, for example, having a screw 
motion to its sliding-rest along the 
whole length of its bed, is kept con¬ 
stantly making cylinders; another, 
having a motion for equalizing the 
velocity of the work at the point at 
which it passes the tool, is kept for 
facing surfaces ; whilst a third is con¬ 
stantly employed in cutting wheels.” 

I am very far from implying that 
these different considerations are of no 
weight; but I think there are counter- 
considerations which are overlooked. 
If one kind of muscular or mental la¬ 
bour is different from another, for that 
very reason it is to some extent a rest 
from that other; and if the greatest 
vigour is not at once obtained in the 
second occupation, neither could the 
first have been indefinitely prolonged 
without some relaxation of energy. 
It is a matter of common experience 





COMBINATION OF LABOUR. 


that a change of occupation will often 
afford relief where complete repose 
would otherwise he necessary, and that 
a person can work many more hours 
without fatigue at a succession of oc¬ 
cupations, than if confined during the 
whole time to one. Different occupa¬ 
tions employ different muscles, or 
different energies of the mind, some 
of which rest and are refreshed while 
others work. Bodily labour itself rests 
from mental, and conversely. The 
variety itself has an invigorating 
effect on what, for want of a more phi¬ 
losophical appellation, we must term 
the animal spirits; so important to 
the efficiency of all work not mechani¬ 
cal, and not unimportant even to that. 
The comparative weight due to these 
considerations is different with differ¬ 
ent individuals; some are more fitted 
than others for persistency in one 
occupation, and less fit for change ; 
they require longer to get the steam 
up (to use a metaphor now common); 
the irksomeness of setting to work lasts 
longer, and it requires more time to 
bring their faculties into full play, and 
therefore when this is once done, they 
do not like to leave off, but go on long 
without intermission, even to the in¬ 
jury of their health. Temperament 
has something to do with these differ¬ 
ences. There are people whose facul¬ 
ties seem by nature to come slowly 
into action, and to accomplish little 
until they have been a long time 
employed. Others, again, get into 
action rapidly, but cannot, without 
exhaustion, continue long. In this, 
however, as in most other things, 
though natural differences are some¬ 
thing, habit is much more. The habit 
of passing rapidly from one occupation 
to another may be acquired, like other 
habits, by early cultivation ; and when 
it is acquired, there is none of the 
sauntering which Adam Smith speaks 
of, after each change; no want of 
energy and interest, but the workman 
comes to each part of his occupation 
with a freshness and a spirit which he 
does not retain if he persists in any 
one part (unless in case of unusual 
excitement) beyond the length of time 
to which he is accustomed. Women 


79 

are usually (at least in their present 
social circumstances) of far greater 
versatility than men ; and the present 
topic is an instance among multitudes, 
how little the ideas and experience of 
women have yet counted for, in form¬ 
ing the opinions of mankind. There 
are few women who would not reject the 
idea that work is made vigorous by being 
protracted, and is inefficient for some 
time after changing to a new thing. 
Even in this case, habit, I believe, 
much more than nature, is the cause 
of the difference. The occupations of 
nine out of every ten men are special, 
those of nine out of every ten women 
general, embracing a multitude of 
details, each of which requires very 
little time. Women are in the con¬ 
stant practice of passing quickly from 
one manual, and still more from one 
mental operation to another, which 
therefore rarely costs them either effort 
or loss of time, while a man’s occupation 
generally consists in working steadily 
for a long time at one thing, or one 
very limited class of things. But the 
situations are sometimes reversed, and 
with them the characters. Women 
are not found less efficient than men 
for the uniformity of factory work, or 
they would not so generally be em¬ 
ployed for it; and a man who has 
cultivated the habit of turning his 
hand to many things, far from being 
the slothful and lazy person described 
by Adam Smith, is usually remarkably 
lively and active. It is true, however, 
that change of occupation may be too 
frequent even for the most versatile. 
Incessant variety is even more fa¬ 
tiguing than perpetual sameness. 

The third advantage attributed by 
Adam Smith to the division of labour, 
is, to a certain extent, real. Inven¬ 
tions tending to save labour in a pai*- 
ticular operation, are more likely to 
occur to any one in proportion as his 
thoughts are intensely directed to that 
occupation, and continually employed 
upon it. A person is not so likely to 
make practical improvements in one 
department of things, whose attention 
is very much diverted to others. But, 
in this, much more depends on general 
intelligence and habitual activity of 




80 BOOK I. CHAPTER VIII. § 6. 


mind, than on exclusiveness of occupa¬ 
tion ; and if that exclusiveness is 
carried to a degree unfavourable to the 
cultivation of intelligence, there will be 
more lost in this kind of advantage 
than gained. We.may add, that what¬ 
ever may be the cause of making 
inventions, when they are once made, 
the increased efficiency of labour is 
owing to the invention itself, and not 
to the division of labour. 

The greatest advantage (next to the 
dexterity of the workmen) derived from 
the minute division of labour which 
takes place in modern manufacturing 
industry, is one not mentioned by 
Adam Smith, but to which attention 
has been drawn by Mr. Babbage; the 
more economical distribution of labour, 
by classing the work-people according 
to their capacity. Different parts of 
the same series of operations require 
unequal degrees of skill and bodily 
strength; and those who have skill 
enough for the most difficult, or 
strength enough for the hardest parts 
of the labour, are made much more 
useful by being employed solely in 
them; the operations which every¬ 
body is capable of, being left to those 
who are fit for no others. Production 
is most efficient when the precise 
quantity of skill and strength, which is 
required for each part of the process, 
is employed in it, and no more. The 
operation of pin-making requires, it 
seems, in its different parts, such 
different degrees of skill, that the wages 
earned by the persons employed vary 
from fourpence halfpenny a day to six 
shillings ; and if the workman who is 
paid at that highest rate had to perform 
the whole process, he would be working 
a part of his time with a waste per 
day equivalent - to the difference be¬ 
tween six shillings and fourpence half¬ 
penny. Without reference to the loss 
sustained in quantity of work done, and 
supposing even that he could make a 
pound of pins in the same time in 
which ten workmen combining their 
labour can make ten pounds, Mr. Bab¬ 
bage computes that they would cost, in 
making, three times and three-quarters 
as much as they now do by means of 
the division of labour. In needle¬ 


making, he adds, the difference would 
be still greater, for in that, the scale 
of remuneration for different parts of 
the process varies from sixpence to 
twenty shillings a day. 

To the advantage which consists in 
extracting the greatest possible amount 
of utility from skill, may be added the 
analogous one, of extracting the utmost 
possible utility from tools. “ If any 
man,” says an able writer,* “ had all 
the tools which many different occupa¬ 
tions require, at least three-fourths of 
them would constantly be idle and 
useless. It were clearly then better, 
were any society to exist where each 
man had all these tools, and alternately 
carried on each of these occupations, 
that the members of it should, if 
possible, divide them amongst them, 
each restricting himself to some par¬ 
ticular employment. The advantages 
of the change to the whole community, 
and therefore to every individual in it, 
are great. In the first place, the va¬ 
rious implements, being in constant 
employment, yield a better return for 
what has been laid out in procuring 
them. In consequence their owners 
can afford to have them of better 
quality and more complete construc¬ 
tion. The result of both events is, that 
a larger provision is made for the 
future wants of the whole society.” 

§ 6. The division of labour, as all 
writers on the subject have remarked, 
is limited by the extent of the market. 
If, by the separation of pin-making 
into ten distinct employments, forty- 
eight thousand pins can be made in a 
day, this separation will only be ad¬ 
visable if the number of accessible 
consumers is such as to require, every 
day, something like forty-eight thou¬ 
sand pins. If there is only a demand 
for twenty-four thousand, the division 
of labour can only bo advantageously 
carried to the extent which will every 
day produce that smaller number. 
Ibis, therefore, is a further mode in 
which an accession of demand for 
a commodity tends to increase the 

* Statement of some New Principles on the 
subject of Political Economy , by John Rae, 
(Boston, U.S.) p. 1G4. 



PRODUCTION ON A LARGE 

efficiency of the labour employed in its 
production. The extent of the market 
may be limited by several causes: too 
small a population; the population too 
scattered and distant to be easily ac¬ 
cessible ; deficiency of roads and water 
carriage ; or, finally, the population too 
poor, that is, their collective labour 
too little effective, to admit of their 
being large consumers. Indolence, 
want of skill, and want of combination 
of labour, among those who would 
otherwise be buyers of a commodity, 
limit, therefore, the practicable amount 
of combination of labour among its pro¬ 
ducers. In an early stage of civiliza¬ 
tion, when the demand of any par- 
ticular locality was necessarily small, 
industry only flourished among those 
who by their command of the sea-coast 
or of a navigable river, could have the 
whole world, or all that part of it 
which lay on coasts or navigable rivers, 
as a market for their productions. 
The increase of the general riches of 
the world, when accompanied with 
freedom of commercial intercourse, im¬ 
provements in navigation, and inland 
communication by roads, canals, or 
railways, tends to give increased pro¬ 
ductiveness to the labour of every. 


AND ON A SMALL SCALE. 81 

nation in particular, by enabling each 
locality to supply with its special 
products so much larger a market, that 
a great extension of the division of 
labour in their production is an ordi¬ 
nary consequence. 

The division of labour is also limited, 
in many cases, by the nature of the 
employment. Agriculture, for example, 
is not susceptible of so great a division 
of occupation as many branches of 
manufactures, because its different 
operations cannot possibly be simul¬ 
taneous. One man cannot be always 
ploughing, another sowing, and another 
reaping. A workman who only prac¬ 
tised one agricultural operation would 
be idle eleven months of the year. The 
same person may perform them all in 
succession, and have, in most climates, 
a considerable amount of unoccupied 
time. To execute a great agricultural 
improvement, it is often necessary that 
many labourers should work together; 
but in general, except the few whose 
business is superintendence, they all 
work in the same manner. A canal or 
a railway embankment cannot be 
made without a combination of many 
labourers ; but they are all excavators, 
except the engineer and a few clerks. 


CHAPTER IX. 


OP PRODUCTION ON A LARGE, AND 

§ 1. From the importance of com¬ 
bination of labour, it is an obvious con¬ 
clusion, that there are many cases in 
which production is made much more 
effective by being conducted on a large 
scale. Whenever it is essential to the 
greatest efficiency of labour that many 
labourers should combine, even though 
only in the way of Simple Co-operation, 
the scale of the enterprise must be 
such as to bring many labourers to¬ 
gether, and the capital must be large 
enough to maintain them. Still more 
needful is this when the nature of the 
employment allows, and the extent of 
the possible market encourages, a 
P.E. 


PRODUCTION ON A SMALL SCALE. 

considerable division of labour. The 
larger the enterprise, the farther the 
division of labour may be carried. This 
is one of the principal causes of large 
manufactories. Even when no addi¬ 
tional subdivision of the work would 
follow an enlargement of the opera¬ 
tions, there will be good economy in 
enlarging them to the point at which 
every person to whom it is convenient 
to assign a special occupation, will 
have full employment in that occupa¬ 
tion. This point is well illustrated by 
Mr. Babbage.* 

“ If machines be kept working through 
* Page 214, et seqq. 

G 





BOOK I. CHAPTER IX. § 1. 


82 

the twenty-four hours,” (which is evi¬ 
dently the only economical mode of 
employing them.) “it is necessary that 
some person shall attend to admit the 
workmen at the time they relieve each 
other; and whether the porter or other 
servant so employed admit one person 
or twenty, his rest will be equally dis¬ 
turbed. It will also be necessary occa¬ 
sionally to adjust or repair the machine; 
and this can be done much better by 
a workman accustomed to machine¬ 
making, than by the person who uses 
it. Now, since the good performance 
and the duration of machines depend, 
to a very great extent, upon correcting 
every shake or imperfection in their 
parts as soon as they appear, the 
prompt attention of a workman resi¬ 
dent on the spot will considerably re¬ 
duce the expenditure arising from the 
wear and tear of the machinery. But 
in the case of a single lace-frame, or a 
single loom, this would be too expensive 
a plan. Here then arises another 
circumstance which tends to enlarge 
the extent of a factory. It ought to 
consist of such a number of machines 
as shall occupy the whole time of one 
workman in keeping them in order: if 
extended beyond that number, the 
same principle of economy would point 
out the necessity of doubling or tripling 
the number of machines, in order to 
employ the whole time of two or three 
skilful workmen. 

“ When one portion of the workman’s 
labour consists in the exertion of mere 
physical force, as in weaving, and in 
many similar arts, it will soon occur to 
the manufacturer, that if that part 
were executed by a steam-engine, the 
same man might, in the case of weav¬ 
ing, attend to two or more looms at 
once: and, since we already suppose 
that one or more operative engineers 
have been employed, the number of 
looms may be so arranged that their 
time shall be fully occupied in keeping 
the steam-engine and the looms in 
order. 

“ Pursuing the same principles, the 
manufactory becomes gradually so en¬ 
larged, that the expense of lighting 
during the night amounts to a con¬ 
siderable sum: and as there are 


already attached to the establishment 
persons who are up all night, and can 
therefore constantly attend to it, and 
also engineers to make and keep in re^ 
pair any machinery, the addition of an 
apparatus for making gas to light the 
factory leads to a new extension, at the 
same time that it contributes, by di¬ 
minishing the expense of lighting, and 
the risk of accidents from fire, to re¬ 
duce the cost of manufacturing. 

“ Long before a factory has reached 
this extent, it will have been found 
necessary to establish an accountant’s 
department, with clerks to pay the 
workmen, and to see that they arrive 
at their stated times; and this de¬ 
partment must be in communication 
with the agents who purchase the raw 
produce, and with those who sell the 
manufactured article.” It will cost 
these clerks and accountants little more 
time and trouble to pay a large number 
of workmen than a small number: 
to check the accounts of large transac¬ 
tions, than of small. If the business 
doubled itself, it would probably be 
necessary to increase, but certainly not 
to double, the number either of ac¬ 
countants, or of buying and selling 
agents. Every increase of business 
would enable the whole to be carried on 
with a proportionally smaller amount 
of labour. 

As a general rule, the expenses of a 
business do not increase by any means 
proportionally to the quantity of busi¬ 
ness. Let us take as an example, a 
set of operations which we are ac¬ 
customed to see carried on by one great 
establishment, that of the Post Office. 
Suppose that the business, let us sav 
only of the London letter-post, instead 
of being centralized in a single concern, 
were divided among five or six com¬ 
peting companies. Each of these would 
be obliged to maintain almost as large 
an establishment as is now sufficient 
for the whole. Since each must arrange 
for receiving and delivering letters in 
all parts of the town, each must send 
lettei’-carriers into every street, and 
almost every alley, and this too as 
many times in the day as is now done 
by the Post Office, if the service is to 
be as well performed. Each must have 





PRODUCTION ON A LARGE AND ON A SMALL SCALE. 83 


an office for receiving letters in every 
neighbourhood, with all subsidiary 
arrangements for collecting the letters 
from the different offices and re-dis¬ 
tributing them. To this must be added 
the much greater number of superior 
officers who would be required to check 
and control the subordinates, implying 
not only a greater cost in salaries for 
such responsible officers, but the neces¬ 
sity, perhaps, of being satisfied in many 
instances with an inferior standard of 
qualification, and so failing in the 
object. 

Whether or not the advantages ob¬ 
tained by operating on a large scale 
preponderate in any particular case 
over the more watchful attention, and 
greater regard to minor gains and 
losses, usually found in small establish¬ 
ments, can be ascertained, in a state 
of free competition, by an unfailing 
test. Wherever there are large 
and small establishments in the same 
business, that one of the two which in 
existing circumstances carries on the 
production at greatest advantage, will 
be able to undersell the other. The 
power of permanently underselling can 
only, generally speaking, be derived 
from increased effectiveness of labour ; 
and this, when obtained by a more ex¬ 
tended division of employment, or by 
a classification tending to a better 
economy of skill, always implies a 
greater produce from the same labour, 
and not merely the same produce from 
less labour: it increases not the sur¬ 
plus only, but the gross produce of 
industry. If an increased quantity of 
the particular article is not required, 
and part of the labourers in conse¬ 
quence lose their employment, the 
capital which maintained and employed 
them is also set at liberty; and the 
general produce of the country is in¬ 
creased, by some other application of 
their labour. 

Another of the causes of large manu¬ 
factories, however, is the introduction 
of processes requiring expensive ma¬ 
chinery. Expensive machinery sup¬ 
poses a large capital; and is not re¬ 
sorted to except with the intention of 
producing, and the hope of selling, as 
much of the article as comes up to the 


full powers of the machine. For both 
these reasons, wherever costly ma¬ 
chinery is used, the large system of 
production is inevitable. But the 
power of underselling is not in this 
case so unerring a test as in the former, 
of the beneficial effect on the total 
production of the community. The 
power of underselling does not depend 
on the absolute increase of produce, 
but on its bearing an increased propor¬ 
tion to the expenses: which, as was 
shown in a former chapter,* it may 
do, consistently with even a diminution 
of the gross annual produce. By the 
adoption of machinery, a circulating 
capital, wdiich was perpetually con¬ 
sumed and reproduced, has been con- 
| verted into a fixed capital, requiring 
only a small annual expense to keep it 
up: and a much smaller produce will 
suffice for merely covering that ex¬ 
pense, and replacing the remaining 
circulating capital of the producer. 
The machinery therefore might answer 
perfectly well to the manufacturer, and 
enable him to undersell his competitors, 
though the effect on the production of 
the country might be not an increase 
but a diminution. It is true, the 
article will be sold cheaper, and there¬ 
fore, of that single article, there will 
probably be not a smaller, but a greater 
quantity sold; since the loss to the 
community collectively has fallen upon 
the work-people, and they are not the 
principal customers, if customers at 
all, of most branches of manufacture. 
But though that particular branch of 
industry may extend itself, it will be 
by replenishing its diminished circu¬ 
lating capital from that of the com¬ 
munity generally ; and if the labourers 
employed in that department escape 
loss of employment, it is because the 
loss will spread itself over the labouring 
people at large. If any of them are 
reduced to the condition of unproduc 
tive labourers, supported by voluntary 
or legal charity, the gross produce of 
the country is to that extent perma¬ 
nently diminished, until the ordinary 
progress of accumulation makes it up : 
but if the condition of the labouring 
classes enable them to bear a tempo- 
* Supra, chap. vi. p. 59. 

G 2 








BOOK I. CHAPTER IX. § 2. 


84 

rary reduction of wages, and the super¬ 
seded labourers become absorbed in 
other employments, their labour is 
still productive, and the breach in the 
gross produce of the community is re¬ 
paired, though not the detriment to 
the labourers. I have restated this 
exposition, which has already been 
made in a former place, to impress 
more strongly the truth, that a 
mode of production does not of neces¬ 
sity increase the productive effect of 
the collective labour of a community, 
because it enables a particular com¬ 
modity to be sold cheaper. The one 
consequence generally accompanies the 
other, but not necessarily. I will not 
here repeat the reasons I formerly 
gave, nor anticipate those which will 
be given more fully hereafter, for deem¬ 
ing the exception to be rather a case 
abstractedly possible, than one which 
is frequently realized in fact. 

A considerable part of the saving of 
labour effected by substituting the 
large system of production for the 
small, is the saving in the labour of 
the capitalists themselves. If a hun¬ 
ched producers with small capitals 
carry on separately the same business, 
the superintendence of each concern 
will probably require the whole atten¬ 
tion of the person conducting it, suffi 
ciently at least to hinder his time or 
thoughts from being disposable for any¬ 
thing else: while a single manufac¬ 
turer possessing a capital equal to the 
sum of theirs, with ten or a dozen 
clerks, could conduct the whole of their 
amount of business, and have leisure 
too for other occupations. The small 
capitalist, it is true, generally com¬ 
bines with the business of direction 
some portion of the details, which the 
other leaves to his subordinates: the 
small farmer follows his own plough, 
the small tradesman serves in his own 
shop, the small weaver plies his own 
loom. But in this very union of func¬ 
tions there is, in a great proportion of 
cases, a want of economy. The prin¬ 
cipal in the concern is either wasting, 
in the routine of a business, qualities 
suitable for the direction of it, or he is 
only fit for the former, and then the 
latter will be ill done. I must observe 


however that I do not attach, to this 
saving of labour, the importance often 
ascribed to it. There is undoubtedly 
much more labour expended in the 
superintendence of many small capitals 
than in that of one large capital. For 
this labour however the small pro¬ 
ducers have generally a full compensa¬ 
tion, in the feeling of being their own 
masters, and not servants of an em¬ 
ployer. It may be said, that if they 
value this independence they will sub¬ 
mit to pay a price for it, and to sell at 
the reduced rates occasioned by the 
competition of the great dealer or ma¬ 
nufacturer. But they cannot always 
do this and continue to gain a living. 
They thus gradually disappear from 
society. After having consumed their 
little capital in prolonging the unsuc¬ 
cessful struggle, they either sink into 
the condition of hired labourers, or be¬ 
come dependent on others for support. 

§ 2. Production on a large scale is 
greatly promoted by the practice of 
forming a large capital by the combi¬ 
nation of many small i ontributions; or, 
in other words, by the formation of 
joint stock companies. The advan¬ 
tages of the joint stock principle are 
numerous and important. 

In the first place, many undertakings 
require an amount of capital beyond 
the means of the richest individual or 
private partnership. No individual 
could have made a railway from Lon¬ 
don to Liverpool; it is doubtful if any 
individual could even work the traffic 
on it, now when it is made. The go¬ 
vernment indeed could have done both ; 
and in countries where the practice of 
co-operation is only in the earlier 
stages of its growth, the government 
can alone be looked to for any of the 
works for which a great combination 
of means is requisite; because it can 
obtain those means by compulsory 
taxation, and is already accustomed to 
the conduct of large operations. For 
reasons, however, which are tolerably 
well known, and of which we shall treat 
fully hereafter, government agency for 
the conduct of industrial operations is 
generally one of the least eligible re¬ 
sources, when any other is available. 





PRODUCTION ON A LARGE AND ON A SMALL SCALE. 


Next, there are undertakings which 
individuals are not absolutely inca¬ 
pable of performing, but which they 
cannot perform on the scale and with 
the continuity which are ever more 
and more required by the exigencies of 
a society in an advancing state. In¬ 
dividuals are quite capable of despatch¬ 
ing ships from England to any or every 
part of the world, to carry passengers 
and letters ; the thing was done before 
joint stock companies for the purpose 
were heard of. But when, from the 
increase of population and transactions, 
as well as of means of payment, the 
public will no longer content them¬ 
selves with occasional opportunities, 
but require the certainty that packets 
shall start regularly, for some places 
once or even twice a day, lor others 
once a week, for others that a steam 
ship of great size and expensive con¬ 
struction shall depart on fixed days 
twice in each month, it is evident that 
to afford an assurance of keeping up 
with punctuality such a circle of costly 
operations, requires a much larger 
capital and a much larger staff of 
qualified subordinates than can be 
commanded by an individual capitalist. 
There are other cases, again, in which 
though the business might be perfectly 
well transacted with small or mode¬ 
rate capitals, the guarantee of a great 
subscribed stock is necessary or desir¬ 
able as a security to the public for the 
fulfilment of pecuniary engagements. 
This is especially the case when the 
nature of the business requires that 
numbers of persons should be willing 
to trust the concern with their money : 
as in the business of banking, and 
that of insurance: to both of which 
the joint stock principle is eminently 
adapted. It is an instance of the folly 
and jobbery of the rulers of mankind, 
that until a late period the joint stock 
principle, as a general resort, was in 
this country interdicted by law to these 
two modes of'business; to banking 
altogether, and to insurance in the 
department of sea risks; in order to 
bestow a lucrative monopoly on par- i 
ticular establishments which the go- ! 
vernment was pleased exceptionally to j 
license, namely the Bank of England, ! 


*5 

and two insurance companies, the Lon¬ 
don and the Roval Exchange. 

Another advantage of joint stock, or 
associated management, is its incident 
of publicity. This is not an invariable, 
but it is a natural, consequence of the 
joint stock principle, and might be, as 
in some important cases it already is, 
compulsory. In* banking, insurance, 
and other businesses which depend 
wholly on confidence, publicity is a still 
more important element of success than 
a large subscribed capital. A heavy 
loss occurring in a private bank may be 
kept secret; even though it were of 
such magnitude as to cause the ruin of 
the concern, the banker may still carry 
it on for years, trying to retrieve its po¬ 
sition, only to fall in the end with a 
greater crash: but this cannot so easily 
happen in the case of a joint stock com¬ 
pany whose accounts are published 
periodically. The accounts, even if 
cooked, still exercise some check ; and 
the suspicions of shareholders, breaking 
out at the general meetings, put the 
public on their guard. 

These are some of the advantages of 
joint stock over individual manage¬ 
ment. But if we look to the other side 
of the question, we shall find that indi¬ 
vidual management has also very great 
advantages over joint stock. The chief 
of these is the much keener interest of 
the managers in the success of the 
undertaking. 

The administration of a joint stock 
association is, in the main, adminis¬ 
tration by hired servants. Even the 
committee, or board of directors, who 
are s upposed to superintend the manage¬ 
ment, and who do really appoint and 
remove the managers, have no pecu¬ 
niary interest in the good working of 
the concern beyond the shares they in¬ 
dividually hold, which are always a 
very small part of the capital of the 
association, and in general but a small 
part of the fortunes of the directors 
themselves; and the part they take in 
the management 'usually divides their 
time with many other occupations, of 
as great or greater importance to their 
own interest; the business being the 
principal concern of no one except those 
who are hired to carry it on. But 





BOOK I. CHAPTER IX. § 2. 


86 

experience shows, and proverbs, the ex¬ 
pression of popular experience, attest, 
how inferior is the quality of hired 
servants, compared with the ministra¬ 
tion of those personally interested in 
the work, and how indispensable, when 
hired service must be employed, is 
“ the master’s eye” to watch over it. 

The successful conduct of an indus¬ 
trial enterprise requires two quite dis¬ 
tinct qualifications : fidelity, and zeal. 
The fidelity of the hired managers of a 
concern it is possible to secure. When 
their work admits of being reduced to 
a definite set of rules, the violation of 
these is a matter on which conscience 
cannot easily blind itself, and on which 
responsibility may be enforced by the 
loss of employment. But to carry on a 
great business successfully, requires a 
hundred things which, as they cannot 
he defined beforehand, it is impossible 
to convert into distinct and positive 
obligations. First and principally, it 
requires that the directing mind should 
he incessantly occupied with the sub¬ 
ject ; should be continually laying 
schemes by which greater profit may 
he obtained, or expense saved. This 
intensity of interest in the subject it is 
seldom to be expected that any one 
should feel, who is conducting a busi¬ 
ness as the hired servant and for the 
profit of another. There are experi¬ 
ments in human affairs which are con¬ 
clusive on the point. Look at the 
whole class of rulers, and ministers of 
state. The work they are entrusted 
with, is among the most interesting 
and exciting of all occupations; the per¬ 
sonal share which they themselves reap 
of the national benefits or misfortunes 
which befal the state under their rule, 
is far from trifling, and the rewards 
and punishments which they may ex¬ 
pect from public estimation are of the 
plain and palpable kind which are 
most keenly felt and most widely ap¬ 
preciated. Yet how rare a thing is it 
to find a statesman in whom mental 
indolence is not stronger than all these 
inducements. How infinitesimal is the 
proportion who trouble themselves to 
form, or even to attend to, plans of 
public improvement, unless when it is 
made still more troublesome to them 


to remain inactive ; or who have any 
other real desire than that of rubbing 
on, so as to escape general blame. On 
a smaller scale, all who have ever em¬ 
ployed hired labour have had ample 
experience of the efforts made to give 
as little labour in exchange for the 
wages, as is compatible with not being 
turned off. The universal neglect by 
domestic servants of their employer’s 
interests, wherever these are not pro¬ 
tected by some fixed rule, is matter of 
common remark; unless where long 
continuance in the same service, and 
reciprocal good offices, have produced 
either personal attachment, or some 
feeling of a common interest. 

Another of the disadvantages of joint 
stock concerns, which is in some degree 
common to all concerns on a large scale, 
is disregard of small gains and small 
savings. In the management of a great 
capital and great transactions, espe¬ 
cially when the managers have not 
much interest in it of their own, small 
sums are apt to be counted for next to 
nothing ; they never seem worth the 
care and trouble which it costs to attend 
to them, and the credit of liberality and 
openhandedness is cheaply bought by 
a disregard of such trifling considera¬ 
tions. But small profits and small ex¬ 
penses, often repeated, amount to great 
gains and losses : and of this a large 
capitalist is often a sufficiently good 
calculator to be practically aw r are; and 
to arrange his business on a system , 
which if enforced by a sufficiently vigi¬ 
lant superintendence, precludes the pos¬ 
sibility of the habitual w T aste, otherwise 
incident to a great business. But the 
managers of a joint stock concern sel¬ 
dom devote themselves sufficiently to 
the work* to enforce unremittingly, 
even if introduced, through every detail 
of the business, a really economical 
system. 

From considerations of this nature, 
Adam Smith was led to enunciate as a 
principle, that joint stock companies 
could never be expected to maintain 
themselves without an exclusive privi¬ 
lege, except in branches of business 
which like banking, insurance, and 
some others, admit of being, in a con¬ 
siderable degree, reduced to fixed rules. 



PRODUCTION ON A LARGE 

This however is one of those over-state¬ 
ments of a true principle, often met 
with in Adam Smith. In his days there 
were few instances of joint stock com¬ 
panies which had been permanently 
successful without a monopoly, except 
the class of cases which he referred to; 
hut since his time there have been 
many; and the regular increase both 
of the spirit of combination and of the 
ability to combine, will doubtless pro¬ 
duce many more. Adam Smith fixed 
his observation too exclusively on the 
superior energy and more unremitting 
attention brought to a business in which 
the whole stake and the whole gain be¬ 
long to the persons conducting it; and 
he overlooked various countervailing 
considerations which go a great way 
towards neutralizing even that great 
point of superiority. 

Of these one of the most important 
is that which relates to the intellectual 
and active qualifications of the direct¬ 
ing head. The stimulus of individual 
interest is some security for exertion, 
but exertion is of little avail if the in¬ 
telligence exerted is of an inferior order, 
which it must necessarily be in the 
majority of concerns carried on by the 
persons chiefly interested in them. 
Where the concern is large, and can 
afford a remuneration sufficient to at¬ 
tract a class of candidates superior to 
the common average, it is possible to 
select for the general management, and 
for all the skilled employments of a 
subordinate kind, persons of a degree 
of acquirement and cultivated intelli¬ 
gence which more than compensates 
'■’or their inferior interest in the result. 
Their greater perspicacity enables 
them, with even a part of their minds, 
to see probabilities of advantage which 
never occur to the ordinary run of men 
by the continued exertion of the whole 
of theirs; and their superior knowledge, 
and habitual rectitude of perception 
and of judgment, guard them against 
blunders, the fear of which would pre¬ 
vent the others from hazarding their 
interests in any attempt out of the 
ordinary routine. 

It must be further remarked, that it 
is not a necessary consequence of joint 
stock management, that the persons 


AND ON A SMALL SCALE. 87 

employed, whether in superior or in 
subordinate offices, should be paid 
wholly by fixed salaries. There are 
modes of connecting more or less inti¬ 
mately the interest of the employes 
with the pecuniary success of the con¬ 
cern. There is a long series of inter¬ 
mediate positions, between working 
wholly on one’s own account, and work¬ 
ing by the day, week, or year for an 
invariable payment. Even in the case 
of ordinary unskilled labour, there is 
such a thing as task-work, or working 
by the piece : and the superior effi¬ 
ciency of this is so well known, that 
judicious employers always resort to it 
when the work admits of being put out 
in definite portions, without the neces¬ 
sity of too troublesome a surveillance to 
guard against inferiority in the execu¬ 
tion. In the case of the managers of 
joint stock companies, and of the super¬ 
intending and controlling officers in 
many private establishments, it is a 
common enough practice to connect 
their pecuniary interest with the inte¬ 
rest of their employers, by giving them 
part of their remuneration in the form 
of a percentage on the profits. The 
personal interest thus given to hired 
servants is not comparable in intensity 
to that of the owner of the capital; but 
it is sufficient to be a very material 
stimulus to zeal and carefulness, and, 
when added to the advantage of supe¬ 
rior intelligence, often raises the quality 
of the service much above that which 
the generality of masters are capable of 
rendering to themselves. The ulterior 
extensions of' which this principle of 
remuneration is susceptible, being of 
great social as well as economical im¬ 
portance, will be more particularly ad¬ 
verted to in a subsequent stage of the 
present inquiry. 

As I have already remarked of large 
establishments generally, when com¬ 
pared with small ones, whenever com¬ 
petition is free its results will show 
whether individual orjoint stock agency 
is best adapted to the particular case, 
since that which is most efficient and 
most economical will always in the end 
succeed in underselling the other. 

§ 3. The possibility of substituting 



83 BOOK I. CHAPTER IX. § 3. 


the large system of production for the 
small, depends, of course, in the first 
place, on the extent of the market. The 
large system can only be advantageous 
when a large amount of business is to 
be done : it implies, therefore, either a 
populous and flourishing community, 
or a great opening for exportation. 
Again, this as well as every other 
change in the system of production is 
greatly favoured by a progressive con¬ 
dition of capital. It is chiefly when 
the capital of a country is receiving a 
great annual increase, that there is a 
large amount of capital seeking for 
investment: and a new enterprise is 
much sooner and more easily entered 
upon by new capital, than by with¬ 
drawing capital from existing employ¬ 
ments. The change is also much faci¬ 
litated by the existence of large capitals 
in few hands. It is true that the same 
amount of capital can be raised by 
bringing together many small sums. 
But this (besides that it is not equally 
well suited to all branches of industry), 
supposes a much greater degree of com¬ 
mercial confidence and enterprise dif¬ 
fused through the community, and 
belongs altogether to a more advanced 
stage of industrial progress. 

In the countries in which there are 
the largest markets, the widest diffu¬ 
sion of commercial confidence and en¬ 
terprise, the greatest annual increase 
of capital, and the greatest number of 
large capitals owned by individuals, 
there is a tendency to substitute more 
and more, in one branch of industry 
after another, large establishments for 
small ones. In England, the chief 
type of all these characteristics, there 
is a perpetual growth not only of large 
manufacturing establishments, but also, 
wherever a sufficient number of pur¬ 
chasers are assembled, of shops and 
warehouses for conducting retail busi¬ 
ness on a large scale. These are almost 
always able to undersell the smaller 
tradesmen, partly, it is understood, by 
means of division of labour, and the 
economy occasioned by limiting the 
employment of skilled agency to cases 
where skill is required; and partly, no 
doubt, by the saving of labour arising 
from the great scale of the transactions: 


as it costs no more time, and not mucli 
more exertion of mind, to make a large 
purchase, for example, than a small 
one, and very much less than to make 
a number of small ones. 

With a view merely to production, 
and to the greatest efficiency of labour, 
this change is wholly beneficial. In 
some cases it is attended with draw¬ 
backs, rather social than economical, 
the nature of which has been already 
hinted at. But whatever disadvan¬ 
tages may be supposed to attend on the 
change from a small to a large system 
of production, they are not applicable 
to the change from a large to a still 
larger. When, in any employment, 
the rdgime of independent small pro¬ 
ducers has either never been possible, 
or has been superseded, and the sys¬ 
tem of many work-people under one 
management has become fully es¬ 
tablished, from that time any further 
enlargement in the scale of production 
is generally an unqualified benefit. It 
is obvious, for example, how great an 
economy of labour would be obtained 
if London were supplied by a single 
gas or water company instead of the 
existing plurality. While there are 
even as many as two, this implies 
double establishments of all sorts, when 
one only, with a small increase, could 
probably perform the whole operation 
equally well; double sets of machinery 
and works, when the whole of the gas 
or water required could generally be 
produced by one set only; even double 
sets of pipes, if the companies did not 
prevent this needless expense by agree¬ 
ing upon a division of the territory. 
Were there only one establishment, 
it could make lower charges, consist¬ 
ently with obtaining the rate of pro¬ 
fit now realized. But would it do so ? 
Even if it did not, the community in 
the aggregate would still be a gaine r 
since the shareholders are a part of 
the community, and they would obtain 
higher profits while the consumers 
paid only the same. It is, however, an 
error to suppose that the prices are 
ever permanently kept down by the 
competition of these companies. Where 
competitors are so few, they always 
end by agreeing not to compete. They 




PRODUCTION ON A LARGE 

may run a race of cheapness to ruin a 
new candidate, but as soon as he has 
established his footing they come to 
terms with him. When, therefore, a 
business of real public importance can 
only be carried on advantageously upon 
so large a scale as to render the liberty 
of competition almost illusory, it is an 
unthrifty dispensation of the public re¬ 
sources that several costly sets of ar¬ 
rangements should be kept up for the 
purpose of rendering to the community 
this one service. It is much better to 
treat it at once as a public function ; 
and if it be not such as the government 
itself could beneficially undertake, it 
should be made over entire to the com¬ 
pany or association which will perform 
it on the best terms fpr the public. In 
the case of railways, for example, no 
one can desire to see the enormous 
waste of capital and land (not to speak 
of increased nuisance) involved in the 
construction of a second railway to 
connect the same places already united 
by an existing one ; while the two 
would not do the work better than it 
could be done by one, and after a short 
time would probably be amalgamated. 
Only one such line ought to be permitted, 
but the control over that line never 
ought to be parted with by the State, 
unless on a temporary concession, as 
in France ; and the vested right which 
Parliament has allowed to be acquired 
by the existing companies, like all 
other proprietary rights which are op¬ 
posed to public utility, is morally valid 
only as a claim to compensation. 

§ 4. The question between the 
large and the small systems of pro¬ 
duction as applied to agriculture—be¬ 
tween large and small farming, the 
grande and the petite culture —stands, 
in many respects, on different grounds 
from the general question between 
great and small industrial establish¬ 
ments. In its social aspects, and as 
an element in the Distribution of 
Wealth, this question will occupy us 
hereafter: but even as a question of 
production, the superiority of the large 
system in agriculture is by no means 
so clearly established as in manufac¬ 
tures. 


AND ON A SMALL SCALE. 89 

I have already remarked, that the 
operations of agriculture are little sus¬ 
ceptible of benefit from the division of 
labour. There is but little separation 
of employments even on the largest 
farms. The same persons may not in 
general attend to the live stock, to the 
marketing, and to the cultivation of 
the soil; but much beyond that pri¬ 
mary and simple classification the 
subdivision is not carried. The com¬ 
bination of labour of which agriculture 
is susceptible, is chiefly that which 
Mr. Wakefield terms Simple Co-opera¬ 
tion ; several persons helping one 
another in the same work, at the same 
time and place. But I confess it 
seems to me that this able writer at¬ 
tributes more importance to that kind 
of co-operation, in reference to agricul¬ 
ture properly so called, than it de¬ 
serves. None of the common farming 
operations require much of it. There 
is no particular advantage in setting a 
great number of people to work to¬ 
gether in ploughing or digging or sow¬ 
ing the same field, or even in mowing 
or reaping it unless time presses. A 
single family can generally supply all 
the combination of labour necessary 
for these purposes. And in the works 
in which an union of many efforts is 
really needed, there is seldom found 
any impracticability in obtaining it 
where farms are small. 

The waste of productive power by sub¬ 
division of the land often amounts to a 
great evil, but this applies chiefly to a 
subdivision so minute, that the cultiva¬ 
tors have not enough land to occupy 
their time. Up to that point the same 
principles which recommend large 
manufactories are applicable to agri¬ 
culture. For the greatest productive 
efficiency, it is generally desirable 
(though even this proposition must be 
received with qualifications) that no 
family who have any land, should have 
less than they could cultivate, or than 
will fully employ their cattle and tools. 
These, however, are not the dimensions 
of large farms, but of what are reckoned 
in England very small ones. The 
large farmer has some advantage in 
the article of buildings. It does not 
cost so much to house a great nqniber 




BOOK I. CHAPTER IX. § 4. 


90 

of cattle in one building, as to lodge 
them equally well in several buildings. 
There is also some advantage in im¬ 
plements. A small farmer is not so 
likely to possess expensive instru¬ 
ments. But the principal agricultural 
implements, even when of the best 
construction, are not expensive. It may 
not answer to a small farmer to own a 
threshing machine, for the small quan¬ 
tity of corn he has to thresh; but 
there is no reason why such a machine 
should not in every neighbourhood be 
owned in common, or provided by some 
person to whom the others pay a con¬ 
sideration for its use ; especially as, 
when worked by steam, they are so 
constructed as to be moveable.* The 
large farmer can make some saving in 
cost of carriage. There is nearly as 
much trouble in carrying a small por¬ 
tion of produce to market, as a much 
greater produce ; in bringing home a 
small, as a much lai’ger quantity of 
manures, and articles of daily con¬ 
sumption. There is also the greater 
cheapness of buying things in large 
quantities. These various advantages 
must count for something, but it does 
not seem that they ought to count for 
very much. In England for some 
generations, there has been little 
experience of small farms ; but in Ire¬ 
land the experience has been ample, 
not merely under the worst but under 
the best management: and the highest 
Irish authorities may be cited in oppo¬ 
sition to the opinion which on this 
subject commonly prevails in England. 
Mr. Blacker, for example, one of the 
most experienced agriculturists and 
successful improvers in the North of 
Ireland, whose experience was chiefly 
in the best cultivated, which are also 
the most minutely divided parts of the 
country, was of opinion, that tenants 
holding farihs not exceeding from five 

* The observations in the text may here¬ 
after require some degree of modification 
from inventions such as the steam plough 
and the reaping machine. The effect, how¬ 
ever, of these improvements on the relative 
advantages of large and small farms, will not 
depend on the efficiency of the instruments, 
but on their costliness. I see no reason to 
expect that this will be such as to make 
them inaccessible to small farmers, or com¬ 
binations of small farmers. 


to eight or ten acres, could live com¬ 
fortably, and pay as high a rent as any 
large farmer whatever. “ I am firmly 
persuaded” (he says,*) “ that the small 
farmer who holds his own plough and 
digs his own ground, if he follows a 
proper rotation of crops, and feeds his 
cattle in the house, can undersell the 
large farmer, or in other words can pay 
a rent which the other cannot afford: 
and in this I am confirmed by the 
opinion of many practical men who 
have well considered the subject. . . . 
The English farmer of 700 to 800 
acres is a kind of man approaching to 
what is known by the name of a gentle¬ 
man farmer. He must have his horse to 
ride, and his gig, and perhaps an overseer 
to attend to his labourers ; he certainly 
cannot superintend himself the labour 
going on in a farm of 800 acres.” 
After a few other remarks, he adds, 
“ Besides all these drawbacks, which 
the small farmer knows little about, 
there is the great expense of carting 
out the manure from the homestead to 
such a great distance, and again cart¬ 
ing home the crop. A single horse 
will consume the produce of more land 
than would feed a small farmer and 
his wife and two children. And what 
is more than all, the large farmer says 
to his labourers, go to your work ; but 
when the small farmer has occasion to 
hire them, he says, come; the intelli¬ 
gent reader will, I dare say, understand 
the difference.” 

One of the objections most urged 
against small farms is, that they do not 
and cannot maintain, proportionally to 
their extent, so great a number of cattle 
as large farms, and that this occasions 
such a deficiency of manure, that a soil 
much subdivided must always be im¬ 
poverished. It will be found, however, 
that subdivision only produces this 
effect when it throws the land into the 
hands of cultivators so poor as not to 
possess the amount of live stock suit¬ 
able to the size of their farms. A small 
farm and a badly stocked farm are not 
synonymous. To make the comparison 
fairly, we must suppose the same 

* Prize Essay on the Management of Landed 
Property in Ireland, by W illiam Blacker. 
Lsq. (1837,) p. 23. 







PRODUCTION ON A LARGE 

amount of capital which is possessed 
by the. large farmers to be disseminated 
among the small ones. When this 
condition, or even any approach to it, 
exists, and when stall feeding is prac¬ 
tised (and stall feeding now begins to 
be considered good economy even on 
large farms), experience, far from bear¬ 
ing out the assertion that small farm¬ 
ing is unfavourable to the multiplica¬ 
tion of cattle, conclusively establishes 
the very reverse. The abundance of 
cattle, and copious use of manure, on 
the small farms of Flanders, are the 
most striking features in that Flemish 
agriculture which is the admiration of 
all competent judges, whether in Eng¬ 
land or on the Continent.* 

* “ The number of beasts fed on a farm 
of which the whole is arable land,” (says the 
elaborate and intelligent treatise on Flemish 
Husbandry, from personal observation and 
the best sources, published in the Library of 
the Society for the Diffusion of Useful 
Knowledge,) “is surprising to those who are 
not acquainted with the mode in which the 
food is prepared for the cattle. A beast for 
every three acres of land is a common pro¬ 
portion, and in very small occupations where 
much spade husbandry is used, the propor¬ 
tion is still greater. After comparing the 
accounts given in a variety of places and 
situations of the average quantity of milk 
which a cow gives when fed in the stall, the 
result is, that it greatly exceeds that of our 
best dairy farms, and the quantity of butter 
made from a given quantity of milk is 
also greater. It appears astonishing that the 
occupier of only ten or twelve acres of light 
arable land should be able to maintain four 
or five cows, but the fact is notorious in the 
Waes country.” (pp. 59, 60.) 

This subject is treated very intelligently 
in the work of M. Passy, On Systems of Cul~ 
tication and their Influence on Social Economy, 
one of the most impartial discussions, as be¬ 
tween the two systems, which has yet ap¬ 
peared in France. 

“ Without doubt it is England that, on an 
equal surface, feeds the greatest number of 
animals; Holland and some parts of Lom¬ 
bardy can alone vie with her in this respect: 
but is this a consequence of the mode of cul¬ 
tivation, and have not climate and local 
situation a share in producing it ? Of this 
I think there can be no doubt. In fact, what¬ 
ever may have been said, wherever large and 
small cultivation meet in the same place, the 
latter, though it cannot support as many sheep, 
possesses, all things considered, the greatest 
quantity of manure-producing animals. 

“ In Belgium, for example, the two pro¬ 
vinces of smallest farms are Antwerp and 
East Flanders, and they possess on an average 
for every 100 hectares (250 acres) of culti¬ 
vated land, 74 horned cattle and 14 sheep. 


AND ON A SMALL SCALE. 91 

The disadvantage, when disadvan¬ 
tage there is, of small, or rather of pea¬ 
sant farming, as compared with capi¬ 
talist farming, must chiefly consist in 
inferiority of skill and knowledge; hut 
it is not true, as a general fact, that 
such inferiority exists. Countries of 
small farms and peasant farming, Flan¬ 
ders and Italy, had a good agriculture 
many generations before England, and 
theirs is still, as a whole, probably the 
best agriculture in the world. The 
empirical skill, which is the effect of 
daily and close observation, peasant 
farmers often possess in an eminent 
degree. The traditional knowledge, 
for example, of the culture of the vine, 
possessed by the peasantry of the 

The two provinces where we find the large 
farms are Namur and Hainaut, and they 
average, for every 100 hectares of cultivated 
ground, only 30 horned cattle and 45 sheep. 
Beckoning, as is the custom, ten sheep as 
equal to one head of horned cattle, we find 
in the first case, the equivalent of 76 beasts 
to maintain the fecundity of the soil; in the 
latter case less than 35, a difference which 
must be called enormous. (See the statisti¬ 
cal documents published by the Minister of 
the Interior.) The abundance of animals, in 
the parts of Belgium which are most sub¬ 
divided, is nearly as great as in England. 
Calculating the number in England in pro¬ 
portion only to the cultivated ground, there 
are for each 100 hectares, 65 horned cattle 
and nearly 260 sheep, together equal to 91 
of the former, being only an excess of 15. 
It should besides be remembered, that in 
Belgium stall feeding being continued nearly 
the whole year, hardly any of the manure is 
lost, while in England, grazing in the open 
fields diminishes considerably the quantity 
which can be completely utilized. 

“Again, in the Department of the Nord, 
the arrondissements which have the smallest 
farms support the greatest quantity of 
animals. While the arrondissements of Lille 
and Hazebrouck, besides a greater number 
of horses, maintain the equivalent of 52 and 
46 head of horned cattle, those of Dunkirk 
and Avesnes, where the farms are larger, 
produce the equivalent of only 44 and 40 
head. (See the statistics of France published 
by the Minister of Commerce ) 

“ A similar examination extended to other 
portions of France would yield similar re¬ 
sults. In the immediate neighbourhood of 
towns, no doubt, the small farmers, having 
no difficulty in purchasing manure, do not 
maintain animals : but, as a general rule, the 
kind of cultivation which takes most out of 
the ground must be that which isobligedtobe 
most active in renewing its fertility. Assur¬ 
edly the small farms cannot have numerous 
flocks of sheep, and this is an inconvenience ; 
but they support more horned cattle than the 



92 LOOK I. CHAPTER IX. § 4. 


countries where the best wines are 
produced, is extraordinary. There is 
no doubt an absence of science, or at 
least of theory; and to some extent a 
deficiency of the spirit of improvement, 
bo far as relates to the introduction of 
new processes. There is also a want 
of means to make experiments, which 
can seldom be made with advantage 
except by rich proprietors or capitalists. 
As for those systematic improvements 
which operate on a large tract of coun¬ 
try at once (such as great works of 
draining or irrigation) or which for 
any other reason do really require large 
numbers of workmen combining their 
labour, these are not in general to be 
expected from small farmers, or even 
small proprietors ; though combination 
among them for such purposes is by no 
means unexampled, and will become 
more common as their intelligence is 
more developed. 

Against these disadvantages is to be 
placed, where the tenure of land is of 
the requisite kind, an ardour of indus¬ 
try absolutely unexampled in any other 
condition of agriculture. This is a 
subject on which the testimony of com¬ 
petent witnesses is unanimous. The 
working of the petite culture cannot 
be fairly judged where the small culti¬ 
vator is merely a tenant, and not even 
a tenant on fixed conditions, but (as 

large farms. To do so is a necessity they 
cannot escape from, in any country whei’e 
the demands of consumers require their ex¬ 
istence : if they could not fulfil this condi¬ 
tion, they must perish. 

“ The following are particulars, the exact¬ 
ness of which is fully attested by the excel¬ 
lence of the work from which I extract 
them, the statistics of thecommuneo f Vensat 
(department of Puy de Dome), lately pub¬ 
lished by Dr. Jusseraud, mayor of the com¬ 
mune. They are the more valuable, as they 
throw full light on the nature of the changes 
which the extension of small farming has, in 
that district, produced in the number and 
kind of animals by whose manure the pro¬ 
ductiveness of the soil is kept up and in¬ 
creased. The commune consists of 1612 
hectares, divided into 4600 parcelles, owned 
by 591 proprietors, and of this extent 1466 
hectares are under cultivation. In 1790, 
seventeen farms occupied two-thirds of the 
whole, and twenty others the remainder. 
Since then the land has been much divided, 
and the subdivision is now extreme. What 
has been the effect on the quantity of cattle ? 
A considerable increase. In 1790*there were 


until lately in Ireland) at a nominal 
rent greater than can be paid, and 
therefore practically at a varying rent 
always amounting to the utmost that 
can be paid. To understand the sub¬ 
ject, it must be studied where the cul¬ 
tivator is the proprietor, or at least a 
metayer with a permanent tenure; 
where the labour he exerts to increase 
the produce and value of the land 
avails wholly, or at least partly, to his 
own benefit and that of his descend¬ 
ants. In another division of our sub¬ 
ject, we shall discuss at some length 
the important subject of tenures of 
land, and I defer till then any citation 
of evidence on the marvellous industry 
of peasant proprietors. It may suffice 
here to appeal to the immense amount 
of gross produce which, even without a 
permanent tenure, English labourers 
generally obtain from their little 
allotments; a produce beyond com¬ 
parison greater than a large farmer 
extracts, or would find it his interest 
to extract, from the same piece of 
land. 

And this I take to be the true rea¬ 
son why large cultivation is generally 
most advantageous as a mere invest¬ 
ment for profit. Land occupied by a 
large farmer is not, in one sense of the 
word, farmed so highly. There is not 
nearly so much labour expended on it. 

only about 300 horned cattle, and from 1S0O 
to 2000 sheep; there are now 676 of the 
former and only 533 of the latter. Thus 
1300 sheep have been replaced by 3/6 oxen 
and cows, and (all things taken into ac¬ 
count) the quantity of manure has increased 
in the ratio of 490 to 729, or more than 48 
per cent, not to mention that the animals 
being now stronger and better fed, yield a 
much greater contribution than formerly to 
the fertilization of the ground. 

“ Such i^ the testimony of facts on the 
point. It is not true, then, that small farm¬ 
ing feeds fewer animals than large ; on the 
contrary, local circumstances being the 
same, it feeds a greater number : and this is 
only what might have been presumed; for, 
requiring more from the soil, it is obliged to 
take greater pains for keeping up its pro¬ 
ductiveness. All the other reproaches cast 
upon small farming, when collated one by 
one with facts justly appreciated, will be 
seen to be no better founded, and to have 
been made only because the countries com¬ 
pared with one another were differently 
situated in respect to the general causes of 
agricultural prosperity.” (pp. 116-120.) 



PRODUCTION ON A LARGE 

Tins is not on account of anv economy 
arising from combination of labour, but 
because, by employing less, a greater 
return is obtained in proportion to the 
outlay. It does not answer to any one 
to pay others for exerting all the la¬ 
bour which the peasant, or even the 
allotment holder, gladly undergoes 
when the fruits are to be wholly reaped 
by himself. This labour, however, is 
not unproductive ; it all adds to the 
gross produce. With anything like 
equality of skill and knowledge, the 
large farmer does not obtain nearly so 
much from the soil as the small pro¬ 
prietor, or the small farmer with ade¬ 
quate motives to exertion : but though 
his returns are less, the labour is less 
in a still greater degree, and as what¬ 
ever labour he employs must be paid 
for, it does not suit his purpose to em¬ 
ploy more. 

But although the gross produce of 
the land is greatest, other things being 
the same, under small cultivation, and 
although, therefore, a country is able 
on that system to support a larger 
aggregate population, it is generally 
assumed by English writers that what 
is termed the net produce, that is, the 
surplus after feeding the cultivators, 
must be smaller; that therefore, the 
population disposable for all other pur¬ 
poses, for manufactures, for commerce 
and navigation, for national defence, 
for the promotion of knowledge, for the 
liberal professions, for the various 
functions of government, for the arts 
and literature, all of which are depen¬ 
dent on this surplus for their existence 
as occupations, must be less numerous ; 
and that the nation, therefore, (waving 
all question as to the condition of the 
actual cultivators,) must be inferior in 
the principal elements of national 
power, and in many of those of general 
well-being. This, however, has been 
taken for granted much too readily. 
Undoubtedly, the non-agricultural po¬ 
pulation will bear a less ratio to the 
agricultural, under small than under 
large cultivation. But that it will be 
less numerous absolutely, is by no 
means a consequence. If the total 
population, agricultural and non-agri¬ 
cultural, is greater, the non-agricultural 


AND ON A SMALL SCALE. 93 

portion may be more numerous in itself, 
and may yet be a smaller proportion of 
the whole. If the gross produce is 
larger, the net produce may be larger, 
and yet bear a smaller ratio to the 
gross produce. Yet even Mr. Wake- 
tield sometimes appears to confound 
these distinct ideas. In France it is 
computed that two-thirds of the whole 
population are agricultural. In Eng¬ 
land, at most, one-third. Hence Mr. 
Wakefield infers, that “ as in France 
only three people are supported by the 
labour of two cultivators, while in Eng¬ 
land the labour of two cultivators sup¬ 
ports six people, English agriculture 
is twice as productive as French agri¬ 
culture,” owing to the superior effi¬ 
ciency of large farming through com¬ 
bination of labour. But in the first 
place the facts themselves are over¬ 
stated. The labour of two persons in 
England does not quite support six 
people, for there is not a little food 
imported from foreign countries, and 
from Ireland. In France, too, the 
labour of two cultivators does much 
more than supply the food of three per¬ 
sons. It provides the three persons, 
and occasionally foreigners, with flax, 
hemp, and to a certain extent with 
silk, oils, tobacco, and latterly sugar, 
which in England are wholly obtained 
from abroad; nearly all the timber 
used in France is of home growth, 
nearly all which is used in England is 
imported ; the principal fuel of France 
is procured and brought to market by 
persons reckoned among agriculturists, 
in England by persons not so reckoned. 
I do not take into calculation hides 
and wool, these products being com¬ 
mon to both countries, nor wine or 
brandy produced for home consumption, 
since England has a corresponding 
production of beer and spirits; but 
England has no material export of 
either article, and a great importation 
of the last, while France supplies wines 
and spirits to the whole world. I say 
nothing of fruit, eggs, and such minor 
articles of agricultural produce, in 
which the export trade of France is 
enormous. But, not to lay undue stress 
on these abatements, we will take the 
statement as it stands. Suppose that 



94 BOOK I. CHAPTER IX. § 4. 


two persons, in England, do bond fide 
produce the food of six, while in France, 
for the same purpose, the labour of four 
is requisite. Hoes it follow that Eng¬ 
land must have a larger surplus for the 
support of a non-agricultural popula¬ 
tion ? No; hut merely that she can 
devote two thirds of her whole produce 
to the purpose, instead of one-third. 
Suppose the produce to he twice as 
great, and the one-third will amount to 
as much as the two-thirds. The fact 
might he, that owing to the greater 
quantity of labour employed on the 
French system, the same land would 
produce food for twelve persons which 
on the English system would only pro¬ 
duce it for six: and if this were so, 
which would be quite consistent with 
the conditions of the hypothesis, then 
although the food for twelve was pro¬ 
duced by the labour of eight, while the 
six were fed by the labour of only two, 
there would be the same number of 
hands disposable for other employment 
in the one country as in the other. I 
am not contending that the fact is so. 
I know that the gross produce per acre 
in France as a whole (though not in 
its most improved districts) averages 
much less than in England, and that, 
in proportion to the extent and fertility 
of the two countries, England has, in 
the sense we are now speaking of, 
much the largest disposable popula¬ 
tion. But the disproportion certainly 
is not to be measured by Mr. Wake¬ 
field’s simple criterion. As well might 
it be said that agricultural labour 
in the United States, where, by a 
late census, four families in every five 
appeared to be engaged in agricul¬ 
ture, must be still more inefficient than 
in France. 

The inferiority of French cultivation 
(which, taking the country as a whole, 
must be allowed to be real, though 
much exaggerated,) is probably more 
owing to the lower general average of 
industrial skill and energy in that 
country, than to any special cause : 
and even if partly the effect of minute 
subdivision, it does not prove that 
small farming is disadvantageous, but 
only (what is undoubtedly the fact) 
that farms in France are very fre¬ 


quently too small, and, what is worse, 
broken up into an almost incredible 
number of patches or parcelles, most in¬ 
conveniently dispersed and parted from 
one another. 

As a question, not of gross, but of 
net produce, the comparative merits of 
the grande and the petite culture , 
especially when the small fanner is 
also the proprietor, cannot be looked 
upon as decided. It is a question 
on which good judges at present 
differ. The current of English opinion 
is in favour of large farms: on the 
Continent, the weight of authority 
seems to be on the other side. Profes¬ 
sor Rau, of Heidelberg, the author of 
one of the most comprehensive and 
elaborate of extant treatises on politi¬ 
cal economy, and who has that large 
acquaintance with facts and authorities 
on his own subject, which generally 
characterises his countrymen, lays it 
down as a settled truth, that small or 
moderate-sized farms yield not only a 
larger gross but a larger net produce : 
though, he adds, it is desirable there 
should be some great proprietors, to 
lead the way in new improvements.* 
The most apparently impartial and 
discriminating judgment that I have 
met with is that of M. Passy, who 
(always speaking with reference to 
net produce) gives his verdict in favour 
of large farms for grain and forage: 
but, for the kinds of culture which 
require much labour and attention, 
places the advantage wholly on the 
side of small cultivation ; including ia 
this description, not only the vine and 
the olive, where a considerable amount 
of care and labour must be bestowed on 
each individual plant, but also roots, 
leguminous plants, and those which 
furnish the materials of manufactures. 
r I he small size, and consequent multi¬ 
plication, of farms, according to all 
authorities, are extremely favourable 
to the abundance of many minor pro¬ 
ducts of agriculture.! 

* See pp. 352 and 353 of a French transla¬ 
tion published at Brussels in 1839, by M. 
Fred, de Kemmeter, of Ghent. 

t “ In the department of the Nord,” say 3 
M. Passy, “ a farm of 20 hectares (50 acres) 
produces in calves, dairy produce, poultry, 
and eggs, a value of sometimes 1000 francs 



PRODUCTION ON A LARGE 

It is evident that every labourer who 
extracts from the land more than his 
own food, and that of any family he 
may have, increases the means of sup¬ 
porting a non-agricultural population. 
Even if his surplus is no more than 
enough to buy clothes, the labourers 
who make the clothes are a non- 
agricultural population, enabled to 
exist by food which he produces. 
Every agricultural family, therefore, 
which produces its own necessaries, 
adds to the net produce of agriculture ; 
and so does every person born on the 
land, who by employing himself on it, 
adds more to its gross produce than 
the mere food which he eats. It is 
questionable whether, even in the most 
subdivided districts of Europe which 
are cultivated by the proprietors, the 
multiplication of hands on the soil has 
approached, or tends to approach, 
within a great distance of this limit. 
In France, though the subdivision is 
confessedly too great, there is proof 
positive that it is far from having 
reached the point at which it would 
begin to diminish the power of sup¬ 
porting a non-agricultural population. 
This is demonstrated by the great in¬ 
crease of the towns; which have of 
late increased in a much greater ratio 
than the population generally,* show¬ 
ing (unless the condition of the town 
labourers is becoming rapidly de¬ 
teriorated, which there is no reason to 
believe) that even by the unfair and 
inapplicable test of proportions, the 
productiveness of agriculture must be 
on the increase. This, too, concur¬ 
rently with the amplest evidence that 
in the more improved districts of 
France, and in some which, until 
lately, were among the unimproved, 
there is a considerably increased con¬ 
sumption of country produce by the 
country population itself. 

(£40) a year: which, deducting expenses, is 
an addition to the net produce of 15 to 20 
francs per hectare .”—On Systems of Cultiva¬ 
tion , p. 114. 

* During the interval between the census 
of 1851 and that of 1856, the increase of the 
population of Paris alone, exceeded the ag¬ 
gregate increase of all France : while nearly 
all the other large towns likewise showed an 
ncrease. 


AND ON A SMALL SCALE. 95 

Impressed with the conviction that, 
of all faults which can be committed 
by a scientific writer on political and 
social subjects, exaggeration, and asser¬ 
tions beyond the evidence, most require 
to be guarded against, I limited myself 
in the early editions of this work to the 
foregoing very moderate statements. 
I little knew how much stronger my 
language might have been without 
exceeding the truth, and bow much 
the actual progress of French agricul¬ 
ture surpassed anything which I had 
at that time sufficient grounds to 
affirm. The investigations of that 
eminent authority on agricultural sta¬ 
tistics, M. Leonce de Lavergne, under¬ 
taken by desire of the Academy of 
Moral and Political Sciences of the 
Institute of France, have led to the 
conclusion that since the Revolution of 
1789, the total produce of French agri¬ 
culture has doubled; profits and wages 
having both increased in about the 
same, and rent in a still greater ratio. 
M. de Lavergne, whose impartiality is 
one of his greatest merits, is, moreover, 
so far in this instance from the sus¬ 
picion of having a case to make out, 
that he is labouring to show, not how 
much French agriculture has accom¬ 
plished, but how much still remains for 
it to do. “We have required” (he 
says) “ no dess than seventy years to 
bring into cultivation two million hec¬ 
tares” (five million English acres) “ of 
waste land, to suppress half our fallows, 
double our agricultural products, in¬ 
crease our population by 30 per cent, 
our wages by 100 per cent, our rent by 
150 per cent. At this rate we shall 
require three quarters of a century 
more to arrive at the point which 
England has already attained.”* 

After this evidence, we have surely 
now heard the last of the incompati¬ 
bility of small properties and small 
farms with agricultural improvement. 
The only question -which remains open 
is one of degree; the comparative 
rapidity of agricultural improvement 
under the two systems; and it is the 

* Economie Eurale de la France depuis 
1789. Par M. Leonce de Lavergne, Membre 
de l’lnstitut et de la Societd Centrale d’Agri¬ 
culture de France. 2me ed. p. 59. 




96 BOOK I. CHAPTER X. § 1. 


general opinion of those who are equally 
well acquainted with both, that im¬ 
provement is greatest under a due ad¬ 
mixture between them. 

In the present chapter, I do not enter 
on the question between great and 
small cultivation in any other respect 
than as a question of production, and 


of the efficiency of labour. We shall 
return to it hereafter as affecting the 
distribution of the produce, and the 
physical and social well-beinc: of the 
cultivators themselves; in which aspects 
it deserves, and requires, a still more 
particular examination. 


CHAPTER X. 


OF THE LAW OF THE 

§ 1. We have now successively 
considered each of the agents or condi¬ 
tions of production, and of the means 
by which the efficacy of these various 
agents is promoted. In order to 
come to an end of the questions 
which relate exclusively to produc¬ 
tion, one more, of primary importance, 
remains. 

Production is not a fixed, but an in¬ 
creasing thing. When not kept back 
by bad institutions, or a low state of 
the arts of life, the produce of industry 
has usually tended to increase; stimu¬ 
lated not only by the desire of the pro¬ 
ducers to augment their means of 
consumption, but by the increasing 
number of the consumers. Nothing in 
political economy can be of more im¬ 
portance than to ascertain the law of 
this increase of production ; the condi¬ 
tions to which it is subject; whether it 
has practically any limits, and what 
these are. There is also no subject in 
political economy which is popularly 
less understood, or on which the errors 
committed are of a character to pro¬ 
duce, and do produce, greater mis¬ 
chief. 

We have seen that the essential re¬ 
quisites of production are three—labour, 
capital, and natural agents; the term 
capital including all external and phy¬ 
sical requisites which are products of 
labour, the term natural agents all those 
which are not. But among natural 
agents we need not take into account 
those which, existing in unlimited 


INCREASE OF LABOUR. 

quantity, being incapable of appropria¬ 
tion, and never altering in their quali¬ 
ties, are always ready to lend an equal 
degree of assistance to production, 
whatever may be its extent; as air, 
and the light of the sun. Being now 
about to consider the impediments to 
production, not the facilities for it, 
we need advert to no other natural 
agents than those which are liable to 
be deficient, either in quantity or in 
productive power. These may be all 
represented by the term land. Land, 
in the narrowest acceptation, as the 
source of agricultural produce, is the 
chief of them; and if we extend the 
term to mines and fisheries—to what 
is found in the earth itself, or in the 
waters which partly cover it, as well as 
to what is grown or fed on its surface, 
it embraces everything with which we 
need at present concern ourselves. 

We may say, then, without a greater 
stretch of language than under the 
necessary explanations is permissible, 
that the requisites of production are 
Labour, 'Capital, and Land. The in¬ 
crease of production, therefore, depends 
on the properties of these elements. It 
is a result of the increase either of the 
elements themselves, or of their pro¬ 
ductiveness. The law of the increase 
of production must be a consequence of 
the laws of these elements ; the limits 
to the increase of production must be 
the limits, whatever they are, set by 
those laws. We proceed to consider 
the three elements successively, with 





LAW OF THE INCREASE OF LABOUR. 


reference to this effect; or in other 
words, the law of the increase of pro¬ 
duction, viewed in respect of its de¬ 
pendence, first on Labour, secondly on 
Capital, and lastly on Land. 

§ 2. The increase of labour is the 
increase of mankind; of population. 
On this subject the discussions excited 
by the Essay of Mr. Malthus have 
made the truth, though by no means 
universally admitted, yet so fully 
known, that a briefer examination of 
the question than would otherwise have 
been necessary will probably on the 
present occasion suffice. 

The power of multiplication inherent 
in all organic life may be regarded as 
infinite. There is no one species of 
vegetable or animal, which, if the earth 
were entirely abandoned to it, and to 
the things on which it feeds, would not 
in a small number of years overspread 
every region of the globe, of which the 
climate was compatible with its ex¬ 
istence. The degree of possible rapidity 
is different in different orders of beings ; 
but in all it is sufficient, for the earth 
to be very speedily filled up. There 
are many species of vegetables of which 
a single plant will produce in one year 
the germs of a thousand; if only two 
come to maturity, in fourteen years the 
two will have multiplied to sixteen 
thousand and more. It is but a mode¬ 
rate case of fecundity in animals to be 
capable of quadrupling their numbers 
in a single year; if they only do as 
much in half a century, ten thousand 
will have swelled within two centuries 
to upwards of two millions and a half. 
The capacity of increase is necessarily 
in a geometrical progression: the nume¬ 
rical ratio alone is different. 

To this property of organized beings, 
the human species forms no exception. 
Its power of increase is indefinite, and 
the actual multiplication would be 
extraordinarily rapid, if the power were 
exercised to the utmost. It never is 
exercised to the utmost, and yet, in 
the most favourable circumstances 
known to exist, which are those of a 
fertile region colonized from an in¬ 
dustrious and civilized community, 
population has continued, for several 
P.E. 


97 

generations, independently of fresh im¬ 
migration, to double itself in not much 
more than twenty years.* That the 
capacity of multiplication in the human 
species exceeds even this, is evident 
if we consider how great is the ordinary 
number of children to a family, where 
the climate is good and early mar¬ 
riages usual; and how small a propor¬ 
tion of them die before the age of 
maturity, in the present state of 
hygienic knowledge, where the locality 
is healthy, and the family adequately 
provided with the means of living. It 
is a very low estimate of the capacity 
of increase, if we only assume, that in 
a good sanitary condition of the people, 
each generation may be double the 
number of the generation which pre¬ 
ceded it. 

Twenty or thirty years ago, these 
propositions might still have required 
considerable enforcement and illustra¬ 
tion ; but the evidence of them is so 
ample and incontestable, that they 
have made their way against all kinds 
of opposition, and may now be re¬ 
garded as axiomatic: though the 
extreme reluctance felt to admitting 
them, every now and then gives birth 
to some ephemeral theory, speedily 
forgotten, of a different law of increase 
in different circumstances, through a 
providential adaptation of the fecundity 
of the human species to the exigencies 
of society.f The obstacle to a just 

* This has been disputed; but the highest 
estimate I have seen of the term which 
population requires for doubling itself in the 
United States, independently of immigrants 
and of their progeny—that of Mr. Carey— 
does not exceed thirty years. 

f One of these theories, that of Mr. Double¬ 
day, may be thought to require a passing 
notice, because it has of late obtained some 
followers, and because it derives a semblance 
of support from the general analogies of 
organic life. This theory maintains that the 
fecundity of the human animal, and of all 
other living beings, is in inverse proportion 
to the quantity of nutriment: that an under¬ 
fed population multiplies rapidly, but that 
all classes in comfortable circumstances are, 
by a physiological law, so unprolific, as sel¬ 
dom to keep up their numbers without being 
recruited from a poorer class. There is no 
doubt that a positive excess of nutriment, 
in animals as well as in fruit trees, is un¬ 
favourable to reproduction; and it is quite 
possible, though by no means proved, that 
the physiological conditions of fecundity may 



BOOK I. CHAPTER X. § 3. 


98 

understanding of the subject does not 
arise from these theories, but from too 
eonfused a notion of the causes which, 
at most times and places, keep the 
actual increase of mankind so far 
behind the capacity. 

§ 3. Those causes, nevertheless, are 
in no way mysterious. What pre¬ 
vents the population of hares and 
rabbits from overstocking the earth ? 
Not want of fecundity, but causes 
very different: many enemies, and in¬ 
sufficient subsistence; not enough to 
eat, and liability to being eaten. In 
the human race, which is not generally 
subject to the latter inconvenience, 
the equivalents for it are war and 
disease. If the multiplication of man¬ 
kind proceeded only, like that of the 
other animals, from a blind instinct, it 
would be limited in the same manner 
with theirs; the births would be as 
numerous as the physical constitution 
of the species admitted of, and the 
population would be kept down by 

exist in the greatest degree when the supply 
of food is somewhat stinted. But any one 
who might be inclined to draw from this, 
even if admitted, conclusions at variance 
with the principle of Mr. Malthus, needs 
only be invited to look through a volume of 
the Peerage, and observe the enormous fami¬ 
lies almost universal in that class; or call 
to mind the large families of the English 
clergy, and generally of the middle classes of 
England. It is, besides, well remarked by 
Mr. Carey, that, to be consistent with Mr. 
Doubleday’s theory, the increase of the popu¬ 
lation of the United States, apart from im¬ 
migration, ought to be one of the slowest on 
record. 

Mr. Carey has a theory of his own, also 
grounded on a physiological truth, that the 
total sum of nutriment received by an or¬ 
ganized body directs itself, in largest propor¬ 
tion, to the parts of the system which are 
most used; from which he anticipates a 
diminution in the fecundity of human beings, 
not through more abundant feeding, but 
through the greater use of their brains inci¬ 
dent to an advanced civilization. There is 
considerable plausibility in this speculation, 
and experience may hereafter confirm it. 
But the change in the human constitution 
Which it supposes, if ever realized, will con¬ 
duce to the expected effect rather by ren¬ 
dering physical self-restraint easier, than by 
dispensing with its necessity; since the most 
rapid known rate of multiplication is quite 
compatible with a very sparing employment 
of the multiplying power. 


deaths.* But the conduct of human 
creatures is more or less influenced by 
foresight of consequences, and by im¬ 
pulses superior to mere animal in¬ 
stincts : and they do not, therefore, 
propagate like swine, but are capable, 
though in very unequal degrees, of 
being withheld by prudence, or by the 
social affections, from giving existence 
to beings born only to misery and pre¬ 
mature death. In proportion as man¬ 
kind rise above the condition of the 
beasts, population is restrained by the 
fear of want, rather than by want 
itself. Even where there is no question 
of starvation, many are similarly acted 
upon by the apprehension of losing 
what have come to be regarded as the 
decencies of their situation in life. 
Hitherto no other motives than these 
two have been found strong enough, in 
the generality of mankind, to counter¬ 
act the tendency to increase. It has 
been the practice of a great majority 
of the middle and the poorer classes, 
whenever free from external control, 
to marry as early, and in most coun¬ 
tries to have as many children, as was 
consistent with maintaining themselves 
in the condition of life which they were 
born to, or were accustomed to consider 
as theirs. Among the middle classes, 
in many individual instances, there is 
an additional restraint exercised from 
the desire of doing more than main- 

* Mr. Carey expatiates on the absurdity of 
supposing that matter tends to assume the 
highest form of organization, the human, at 
a more rapid rate than it assumes the lower 
forms which compose human food; that 
human beings multiply faster than turnips 
and cabbages. But the limit to the increase 
of mankind, according to the doctrine of Mr. 
Malthus, does not depend on the power of 
increase of turnips and cabbages, but on the 
limited quantify of the land on which they 
can be grown. So long as the quantity of 
land is practically unlimited, which it is in 
the United States, and food, consequently, 
can be increased at the highest rate which 
is natural to it, mankind also may, without 
augmented difficulty in obtaining subsistence, 
increase at their highest rate. When Mr. 
Carey can show, not that turnips and cab¬ 
bages but that the soil itself, or the nutritive 
elements contained in it, tend naturally to 
multiply, and that, too, at a rate exceeding 
the most rapid possible increase of mankind, 
he will have said something to the purpose. 
Till then, this part, at least, of his argument 
may be considered as non-existent. 






LAW OF THE INCREASE OF LABOUR, 9‘J 


taming their circumstances — of im¬ 
proving them; but such a desire is 
rarely found, or rarely has that effect, 
in the labouring classes. If they can 
bring up a family as they were them¬ 
selves brought up, even the prudent 
.among them are usually satisfied. Too 
often they do not think even of that, 
but rely on fortune, or on the resources 
to be found in legal or voluntary 
charity. 

In a very backward state of society, 
like that of Europe in the Middle Ages, 
and many parts of Asia at present, 
population is kept down by actual 
starvation. The starvation does not 
take place in ordinary years, but in 
seasons of scarcity, which in those 
states of society are much more fre¬ 
quent and more extreme than Europe 
is now accustomed to. In these seasons 
actual want, or the maladies conse¬ 
quent on it, carry off numbers of the 
population, which in a succession of 
favourable years again expands, to be 
again cruelly decimated. In a more 
improved state, few, even among the 
poorest of the people, are limited to 
actual necessaries, and to a bare 
sufficiency of those : and the increase 
is kept within bounds, not by excess 
of deaths, but by limitation of births. 
The limitation is brought about in 
various ways. In some countries, it is 
the result of prudent or conscientious 
self-restraint. There is a condition to 
which the labouring people are ha¬ 
bituated ; they perceive that by having 
too numerous families, they must sink 
below that condition, or fail to trans¬ 
mit it to their children; and this they 
do not choose to submit to. The 
countries in which, so far as is known, 
a great degree of voluntary prudence 
has been longest practised on this 
subject, are Norway and parts of 
Switzerland. Concerning both, there 
happens to be unusually authentic in¬ 
formation ; many facts were carefully 
brought together by Mr. Malthus, and 
much additional evidence has been 
obtained since his time. In both these 
countries the increase of population is 
very slow ; and what checks it, is not 
multitude of deaths, but fewness of 
births. Both the births and the 


deaths are remarkably few in propor¬ 
tion to the population ; the average 
duration of life is the longest in 
Europe ; the population contains fewer 
children, and a greater proportional 
number of persons in the vigour of life, 
than is known to be the case in any 
other part of the world. The paucity 
of births tends directly to prolong life, 
by keeping the people in comfortable 
circumstances; and the same prudence 
is doubtless exercised in avoiding 
causes of disease, as in keeping clear 
of the principal cause of poverty. 
It is worthy of remark that the 
two countries thus honourably distin¬ 
guished, are countries of small landed 
proprietors. 

There are other cases in which the 
prudence and forethought, which per¬ 
haps might not be exercised by the 
people themselves, are exercised by the 
state for their benefit; marriage not 
being permitted until the contracting 
parties can show that they have the 
prospect of a comfortable support. 
Under these laws, of which I shall 
speak more fully hereafter, the condi¬ 
tion of the people is reported to be 
good, and the illegitimate births not 
so numerous as might be expected. 
There are places, again, in which the 
restraining cause seems to be not so 
much individual prudence, as some 
general and perhaps even accidental 
habit of the country. In the rural 
districts of England, during the last 
century, the growth of population was 
very effectually repressed by the diffi¬ 
culty of obtaining a cottage to live in. 
It was the custom for unmarried la¬ 
bourers to lodge and board with their 
employers; it was the custom for mar¬ 
ried labourers to have a cottage: and 
the rule of the English poor laws by 
wliich a parish was charged with the 
support of its unemployed poor, ren¬ 
dered landowners averse to promote 
marriage. About the end of the cen¬ 
tury, the great demand for men in war 
and manufactures, made it be thought 
a patriotic thing to encourage popula¬ 
tion: and about the same time the 
growing inclination of farmers to live 
like rich people, favoured as it was by 
a long period of high prices, made 






BOOK I. CHAPTER XI. § 1. 


100 

them desirous of keeping inferiors at 
a greater distance, and pecuniary 
motives arising from abuses of the 
poor laws being superadded, they 
gradually drove their labourers into 
cottages, which the landlords now no 
longer refused permission to build. In 
some countries an old standing custom 
that a girl should not marry until she 
had spun and woven for herself an 
ample trousseau (destined for the 
supply of her whole subsequent life), is 
said to have acted as a substantial 
check to population. In England, at 
present, the influence of prudence in 
keeping down multiplication is seen by 
the diminished number of marriages 
in the manufacturing districts in years 
when trade is bad. 

But whatever be the causes by 
which the population is anywhere 
limited to a comparatively slow rate of 
increase, an acceleration of the rate 
very speedily follows any diminution of 
the motives to restraint. It is but 
rarely that improvements in the con¬ 
dition of the labouring classes do any¬ 
thing more than give a temporary 
margin, speedily filled up by an in¬ 
crease of their numbers. The use they 
commonly choose to make of any ad¬ 
vantageous change in their circum¬ 
stances, is to take it out in the form 
which, by augmenting the population, 
deprives the succeeding generation of 
the benefit. Unless, either by their 
general improvement in intellectual 
and moral culture, or at least by 
raising their habitual standard of com¬ 
fortable living, they can be taught to 
make a better use of favourable cir- I 


cumstances, nothing permanent can be- 
done for them; the most promising 
schemes end only in having a more 
numerous, but not a happier people. 
By their habitual standard, 1 mean 
that (when any such there is) down to 
which they will multiply, but not 
low T er. Every advance they make in 
education, civilization, and social im¬ 
provement, tends to raise this standard; 
and there is no doubt that it is gra¬ 
dually, though slowly, rising in the 
more advanced countries of Western 
Europe. Subsistence and employment 
in England have never increased more 
rapidly than in the last forty years, 
but every census since 1821 showed a 
smaller proportional increase of popula¬ 
tion than that of the period preceding; 
and the produce of French agriculture 
and industry is increasing in a pro¬ 
gressive ratio, while the population 
exhibits, in every quinquennial census, 
a smaller proportion of births to the 
population. 

The subject, however, of population, 
in its connexion with the condition of 
the labouring classes, will be con¬ 
sidered in another place: in the 
present, vre have to do with it solely as 
one of the elements of Production: and 
in that character we could not dis¬ 
pense with pointing out the unlimited 
extent of its natural powers of increase, 
and the causes owing to which so 
small a portion of that unlimited 
power is for the most part actually 
exercised. After this brief indica¬ 
tion, we shall proceed to the other 
elements. 


CHAPTER XI. 


OF THE LAW OF THE INCREASE OF CAPITAL. 


§ 1. The requisites of production 
being labour, capital, and land, it has 
been seen from the preceding chapter 
that the impediments to the increase 
of production do not arise from the 
first of these elements. On the side 


of labour there is no obstacle to an 
increase of production, indefinite in 
extent and of unslackening rapidity. 
Population has the power of increasing 
in an uniform and rapid geometrical 
ratio. If the only essential condition- 






LAW OF THE INCREASE OF CAPITAL. 101 


of production "were labour, the produce 
might, and naturally would, increase 
in the same ratio; and there would be 
no limit, until the numbers of mankind 
were brought to a stand from actual 
want of space. 

But production has other requisites, 
and of these, the one which we shall 
next consider is Capital. There cannot 
be more people in any country, or in 
the world, than can be supported from 
the produce of past labour until that 
of present labour comes in. There 
will be no greater number of productive 
labourers in any country, or in the 
world, than can be supported from that 
portion of the produce of past labour, 
which is spared from the enjoyments 
of its possessor for purposes of repro¬ 
duction, and is termed Capital. We 
have next, therefore, to inquire into 
the conditions of the increase of capi¬ 
tal ; the causes by which the rapidity 
of its increase is determined, and 
the necessary limitations of that in¬ 
crease. 

Since all capital is the product of 
saving, that is, of abstinence from 
present consumption for the sake of a 
future good, the increase of capital 
must depend upon two things—the 
amount of the fund from which saving 
can be made, and the strength of the 
dispositions which prompt to it. 

The fund from which saving can be 
made, is the surplus of the produce of 
labour, after supplying the necessaries 
of life to all concerned in the produc¬ 
tion : (including those employed in 
replacing the materials, and keeping 
the fixed capital in repair.) More 
than this surplus cannot be saved 
under any circumstances. As much 
as this, though it never is saved, 
always might be. This surplus is the 
fund from which the enjoyments, as 
-distinguished from the necessaries of 
the producers, are provided; it is the 
fund from which all are subsisted, who 
are not themselves engaged in produc¬ 
tion ; and from which all additions are 
made to capital. It is the real net 
produce of the country. The phrase, 
net produce, is often taken in a more 
limited sense, to denote only the profits 
of the capitalist and the rent of the 


landlord, under the idea that nothing 
can be included in the net produce of 
capital, but what is returned to the 
owner of the capital after replacing 
his expenses. But this is too narrow 
an acceptation of the term. The 
capital of the employer forms the 
revenue of the labourers, and if this 
exceeds the necessaries of life, it gives 
them a surplus which they may cither 
expend in enjoyments or save. For 
every purpose for which there can be 
occasion to speak of the net produce of 
industry, this surplus ought to be in¬ 
cluded in it. When this is included, 
and not otherwise, the net produce of 
the country is the measure of its 
effective power; of what it can spare 
for any purposes of public utility, or 
private indulgence; the portion of 
its produce of which it can dispose at 
pleasure; which can be drawn upon 
to attain any ends, or gratify any 
wishes, either of the government or 
of individuals; which it can either 
spend for its satisfaction, or save for 
future advantage. 

The amount of this fund, this net 
produce, this excess of production 
above the physical necessaries of the 
producers, is one of the elements that 
determine the amount of saving. The 
greater the produce of labour after 
supporting the labourers, the more 
there is which can be saved. The 
same thing also partly contributes to 
determine how much will be saved. 
A part of the motive to saving consists 
in the prospect of deriving an income 
from savings ; in the fact that capital, 
employed in production, is capable of 
not only reproducing itself but yielding 
an increase. The greater the profit 
that can be made from capital, the 
stronger is the motive to its accumu¬ 
lation. That indeed which forms the 
inducement to save, is not the whole 
of the fund which supplies the means 
of saving, not the whole net produce of 
the land, capital, and labour of the 
country, but only a part of it, the part 
which forms the remuneration of the 
capitalist, and is called profit of stock. 
It will however be readily enough 
understood, even previously to the ex¬ 
planations which will be given here- 




102 BOOK I. CHAPTER XI. § 2. 


after, that when the general produc¬ 
tiveness of labour and capital is great,' 
the returns to the capitalist are likely 
to be large, and that some proportion, 
though not an uniform one, will com¬ 
monly obtain between the two. 

§ 2. But the disposition to save 
does not wholly depend on the external 
inducement to it; on the amount of 
profit to be made from savings. With 
the same pecuniary inducement, the 
inclination is very different, in differ¬ 
ent persons, and in different commu¬ 
nities. The effective desire of accumu¬ 
lation is of unequal strength, not only 
according to the varieties of individual 
character, but to the general state of 
society and civilization. Like all 
other moral attributes, it is one in 
which the human race exhibits great 
differences, conformably to the diver¬ 
sity of its circumstances and the stage 
of its progress. 

On topics which if they were to be 
fully investigated would exceed the 
bounds that can be allotted to them 
in this treatise, it is satisfactory to be 
able to refer to other works in which 
the necessary developments have been 
presented more at length. On the 
subject of Population this valuable 
service has been rendered by the 
celebrated Essay of Mr. Malthus; 
and on the point which now occupies 
us 1 can refer with equal confidence to 
another, though a less known work, 
“New Principles of Political Eco¬ 
nomy,” by Dr. Rae.* In no other 

* This treatise is an example, such as not 
unfrequently presents itself, how much more 
depends on accident, than on the qualities 
of a book, in determining its reception. Had 
it appeared at a suitable time, and been fa¬ 
voured by circumstances, it would have had 
every requisite for great success. The author, 
a Scotchman settled in the United States, 
unites much knowledge, an original vein of 
thought, a considerable turn for philosophic 
generalities, and a manner of exposition and 
illustration calculated to make ideas tell not 
only for what they are worth, but for more 
than they are worth, and which sometimes, 
I think, has that effect in the writer’s own 
mind. The principal fault of the book is 
the position of antagonism in which, with 
the controversial spirit apt to be found in 
those who have new thoughts on old subjects, 
he has placed himself towards Adam Smith. 

I call this a fault, (though I think many of 


book known to me is so mucli light 
thrown, both from principle and 
history, on the causes which deter¬ 
mine the accumulation of capital. 

All accumulation involves the sacri¬ 
fice of a present, for the sake of a 
future good. But the expediency of such 
a sacrifice varies very much in different 
states of circumstances; and the wil¬ 
lingness to make it, varies still more. 

In weighing the future against the 
present, the uncertainty of all things 
future is a leading element; and that 
uncertainty is of very different degrees. 
“All circumstances,” therefore, “in¬ 
creasing the probability of the provi¬ 
sion we make for futurity being en¬ 
joyed by ourselves or others, tend” 
justly and reasonably “ to give 
strength to the effective desire of 
accumulation. Thus a healthy climate 
or occupation, by increasing the pro¬ 
bability of life, has a tendency to add 
to this desire. When engaged in 
safe occupations, and living in healthy 
countries, men are much more apt to 
be frugal than in unhealthy or hazard- 
otts occupations, and in climates per¬ 
nicious to human life. Sailors and 
soldiers are prodigals. In the West 
Indies, New Orleans, the East Indies, 
the expenditure of the inhabitants is 
profufee. The same people, coming to 
reside in the healthy parts of Europe, 
and not getting into the vortex of 
extravagant fashion, live economically. 
War and pestilence have always waste 
and luxury among the other evils that 
follow in their train. For similar 
reasons, whatever gives security to the 
affairs of the community is favourable 
to the strength of this principle. In 
this respect the general prevalence of 
law and order, and the prospect of the 
continuance of peace and tranquillity, 
have considerable influence.”f The 
more perfect the security, the greater 

the criticisms just, and some of them far- 
seeing), because there is much less real dif¬ 
ference of opinion than might be supposed 
from Dr. Rae’s animadversions; and because 
what he has found vulnerable in his great 
predecessor is chiefly the “ human too much'* 
in his premises; the portion of them that is 
over and above what was either required or 
is actually used for the establishment of his 
conclusions. 


f Rae, p. 1‘23. 






LAW OF THE INCREASE OF CAPITAL. 


•will be the effective strength of the 
desire of accumulation. Where pro¬ 
perty is less safe, or the vicissitudes 
ruinous to fortunes arc more frequent 
and severe, fewer persons will save at 
all, and of those who do, many will 
require the inducement of a higher 
rate of profit on capital, to make them 
prefer a doubtful future to the tempta¬ 
tion of present enjoyment. 

These are considerations which affect 
the expediency, in the eye of reason, 
of consulting future interests at the 
expense of present. But the inclination 
to make this sacrifice does not solelv 
depend upon its expediency. The dis¬ 
position to save is often far short of 
what reason would dictate: and at 
other times is liable to be in excess of it. 

Deficient strength of the desire of 
accumulation may arise from improvi¬ 
dence, or from want of interest in 
others. Improvidence may be con¬ 
nected with intellectual as well as 
moral causes. Individuals and com¬ 
munities of a very low state of intelli¬ 
gence are always improvident. A 
certain measure of intellectual develop¬ 
ment seems necessary to enable absent 
things, and especially things future, to 
act with any force on the imagination 
and will. The effect of want of interest 
in others in diminishing accumulation, 
will be admitted, if we consider how 
much saving at present takes place, 
which has for its object the interest of 
others rather than of ourselves; the 
education of children, their advance¬ 
ment in life, the future interests o r 
other personal connexions, the power 
of promoting by the bestowal of money 
or time, objects of public or private 
usefulness. If mankind were generally 
in the state of mind to which some 
approach was seen in the declining 
period of the Roman empire—caring 
nothing for their heirs, as well as 
nothing for friends, the public, or any 
object which survived them — they 
would seldom deny themselves any in¬ 
dulgence for the sake of saving, beyond 
what was necessary for their own future 
years; which they would place in life 
annuities, or in some other form which 
would make its existence and their 
lives terminate together. 


103 

§ 3. From these various causes, in¬ 
tellectual and moral, there is, in differ¬ 
ent portions of the human race, a 
greater diversity than is usually ad¬ 
verted to, in the strength of the effective 
desire of accumulation. A backward 
state of general civilization is often 
more the effect of deficiency in this 
particular than in many others which 
attract more attention. In the cir¬ 
cumstances, for example, of a hunting 
tribe, “ man may be said to be neces¬ 
sarily improvident, and regardless of 
futurity, because, in this state, the 
future presents nothing which can be 
with certainty either foreseen or go¬ 
verned.Besides a want of the 

motives exciting to provide for the 
needs of futurity through means of the 
abilities of the present, there is a want 
of the habits of pei’ception and action, 
leading to a constant connexion in the 
mind of those distant points, and of the 
series of events serving to unite them. 
Even, therefore, if motives be awakened 
capable of producing the exertion ne¬ 
cessary to effect this connexion, there 
remains the task of training the mind 
to think and act so as to establish it.” 

For instance: “Upon the banks of 
the St. Lawrence there are several 
1 little Indian villages. They are sur- 
rounded, in general, by a good deal of 
land, from which the wood seems to 
have been long extirpated, and have, 
besides, attached to them, extensive 
tracts of forest. The cleared land is 
rarely, I may almost say never, culti¬ 
vated, nor are any inroads made in the 
forest for such a purpose. The soil is, 
nevertheless, fertile, and were it not, 
manure lies in heaps by their houses. 
Were every family to inclose half an 
acre of ground, till it, and plant it in 
potatoes and maize, it would yield a 
sufficiency to support them one-half 
the year. They suffer, too, every now 
and then, extreme want, insomuch 
that, joined to occasional intemperance, 
it is rapidly reducing their numbers. 
This, to us, so strange apathy proceeds 
not, in any great degree, from repug¬ 
nance to labour; on the contrary, they 
apply very diligently to it when its 
reward is immediate. Thus, besides 
their peculiar occupations of hunting 






BOOK I. CHAPTER XI. § 3. 


104 

and fishing, in which they are ever 
ready to engage, they are much em¬ 
ployed in the navigation of the St. 
Lawrence, and may be seen labouring 
at the oar, or setting with the pole, in 
the large boats used for the purpose, 
and always furnish the greater part of 
the additional hands necessary to con¬ 
duct rafts through some of the rapids. 
Nor is the obstacle aversion to agri¬ 
cultural labour. This is no doubt a 
prejudice of theirs; but mere prejudices 
always yield, principles of action cannot 
be created. When the returns from 
agricultural labour are speedy and 
great, they are also agriculturists. 
Thus, some of the little islands on 
Lake St. Francis, near the Indian 
village of St. Regis, are favourable to 
the growth of maize, a plant yielding 
a return of a hundredfold, and forming, 
even when half ripe, a pleasant and 
substantial repast. Patches of the 
best land on these islands are, there¬ 
fore, every year cultivated by them for 
this purpose. As their situation renders 
them inaccessible to cattle, no fence is 
required; were this additional outlay 
necessary, I suspect they would be 
neglected, like the commons adjoining 
their village. These had apparently, 
at one time, been under crop. The 
cattle of the neighbouring settlers 
would now, however, destroy any crop 
not securely fenced, and this additional 
necessary outlay consequently bars 
their culture. It removes them to an 
order of instruments of slower return 
than that which corresponds to the 
Strength of the effective desire of accu¬ 
mulation in this little society. 

“ It is here deserving of notice, that 
what instruments of this kind they do 
form, are completely formed. The 
small spots of corn they cultivate are 
thoroughly weeded and hoed. A little 
neglect in this part would indeed re¬ 
duce the crop very much; of this ex¬ 
perience has made them perfectly 
aware, and they act accordingly. It is 
evidently not the necessary labour that 
is the obstacle to more extended cul¬ 
ture, but the distant return from that 
labour. I am assured, indeed, that 
among some of the more remote tribes, 
the labour thus expended much exceeds 


that given by the whites. The same 
portions of ground being cropped with¬ 
out remission, and manure not being 
used, they would scarcely yield any 
return, were not the soil most carefully 
broken and pulverized, both with the 
hoe and the hand. In such a situation 
a white man would clear a fresh piece 
of ground. It would perhaps scarce 
repay his labour the first year, and he 
would have to look for his reward in 
succeeding years. On the Indian, suc¬ 
ceeding years are too distant to make 
sufficient impression ; though, to obtain 
what labour may bring about in the 
course of a few months, he toils even 
more assiduously than the white man.”* 
This view of things is confirmed by 
the experience of the Jesuits, in their in¬ 
teresting efforts to civilize the Indians 
of Paraguay. They gained the confi¬ 
dence of these savages in a most 
extraordinary degree. They acquired 
influence over them sufficient to make 
them change their whole manner of 
life. They obtained their absolute sub¬ 
mission and obedience. They estab¬ 
lished peace. They taught them all 
the operations of European agricul¬ 
ture, and many of the more difficult 
arts. There were everywhere to be 
seen, according to Charlevoix, “ work¬ 
shops of gilders, painters, sculptors, 
goldsmiths, watchmakers, carpenters, 
joiners, dyers,” &c. These occupations 
were not practised for the personal 
gain of the artificers : the produce was 
at the absolute disposal of the mis¬ 
sionaries, who ruled the people by a 
voluntary despotism. The obstacles 
arising from aversion to labour were 
therefore very completely overcome. 
The' real difficulty Avas the imprOAU- 
dence of the people; their inability to 
think for the future ; and the necessity 
accordingly of the most unremitting 
and minute superintendence on the 
part of their instructors. “ Thus at 
first, if these gave up to them the care 
of the oxen with Avhich they ploughed, 
their indolent thoughtlessness would 
probably leave them at evening still 
yoked to the implement. Worse than 
this, instances occurred where they cut 
them up for supper, thinking, Avhen re- 
9 Rae, p. 136. 



LAW OF THE INCREASE OF CAPITAL. 


prehended, that they sufficiently ex¬ 
cused themselves by saying they were 
hungry. . . . These fathers, says Ul- 
loa, have to visit the houses, to examine 
what is really wanted: for, without this 
care, the Indians would never look after 
■anything. They must be present, too, 
when animals are slaughtered, not only 
that the meat may be equally divided, 
but that nothing may be lost.” “ Rut 
notwithstanding all this care and su¬ 
perintendence,” says Charlevoix, “ and 
all the precautions which are taken to 
prevent any want of the necessaries of 
life, the missionaries are sometimes 
much embarrassed. It often happens 
that they” (the Indians) “do not reserve 
to themselves a sufficiency of grain, 
even for seed. As for their other pro¬ 
visions, were they not well looked after, 
they would soon be without where¬ 
withal to support life.”* 

As an example intermediate, in the 
strength of the effective desire of accu¬ 
mulation, between the state of things 
thus depicted and that of modern 
Europe, the case of the Chinese de¬ 
serves attention. From various cir¬ 
cumstances in their personal habits 
and social condition, it might be an¬ 
ticipated that they would possess a 
degree of prudence and self-control 
greater than other Asiatics, but inferior 
to most European nations; and the fol¬ 
lowing evidence is adduced of the fact. 

“ Durability is one of the chief 
qualities, marking a high degree of 
the effective desire of accumulation. 
The testimony of travellers ascribes to 
the instruments formed by the Chinese, 
a very inferior durability to similar 
instruments constructed by Europeans. 
The houses, we are told, unless of the 
higher ranks, are in general of unburnt 
bricks, of clay, or of hurdles plastered 
with earth ; the roofs, of reeds fastened 
to laths. We can scarcely conceive 
more unsubstantial or temporary fabrics. 
Their partitions are of paper, requiring 
to be renewed every year. A similar 
observation may be made concerning 
their implements of husbandry, and 
other utensils. They are almost en¬ 
tirely of wood, the metals entering 
but very sparingly into their construc- 
* Rae, p. 140. 


105 

tion; consequently they soon wear out, 
and require frequent renewals. A 
greater degree of strength in the effec¬ 
tive desire of accumulation, would 
cause them to be constructed of mate¬ 
rials requiring a greater present ex¬ 
penditure, but being far more durable. 
From the same cause, much land, that 
in other countries would be cultivated, 
lies waste. All travellers take notice 
of large tracts of lands, chiefly swamps, 
which continue in a state of nature. 
To bring a swamp into tillage is gene¬ 
rally a process, to complete which, 
requires several years. It must be 
previously drained, the surface long 
exposed to the sun, and many opera¬ 
tions performed, before it can be made 
capable of bearing a crop. Though 
yielding, probably, a very considerable 
return for the labour bestowed on it, 
that return is not made until a long 
time has elapsed. The cultivation of 
such land implies a greater strength of 
the effective desire of accumulation 
than exists in the empire. 

“ The produce of the harvest is, as 
we have remarked, always an instru¬ 
ment of some order or another; it is a 
provision for future want, and regulated 
by the same laws as those to which 
other means of attaining a similar end 
conform. It is there chiefly rice, of 
which there are two harvests, the one 
in June, the other in October. The 
period then of eight months between 
October and June, is that for which 
provision is made each year, and the 
different estimate they make of to-day 
and this day eight months will appeal* 
in the self-denial they practise now, in 
order to guard against want then. 
The amount of this self-denial would 
seem to be small. The father Rarennin, 
indeed, (who seems to have been one 
of the most intelligent of the Jesuits, 
and spent a long life among the 
Chinese of all classes,) asserts, that 
it is their great deficiency in fore¬ 
thought and frugality in this respect, 
which is the cause of the scarcities 
and famines that frequently occur.” 

That it is defect of providence, not de¬ 
fect of industry, that limits production 
among the Chinese, is still more ob¬ 
vious than in the case of the semi-agri- 



BOOK I. CHAPTER XI. § 3. 


106 

culturalised Indians. “ Where the re¬ 
turns are quick, where the instruments 
formed require but little time to bring 
the events for which they were formed 
to an issue,” it. is well known that 
“the great progress which has been 
made in the knowledge of the arts 
suited to the nature of the country and 
the wants of its inhabitants” makes 
industry energetic and effective. “ The 
warmth of the climate, the natural fer¬ 
tility of the country, the knowledge 
which the inhabitants have acquired 
of the arts of agriculture, and the dis¬ 
covery and gradual adaptation to every 
soil of the most useful vegetable pro¬ 
ductions, enable them very speedily to 
draw from almost any part of the sur¬ 
face, what is there esteemed an equiva¬ 
lent to much more than the labour be¬ 
stowed in tilling and cropping it. 
They have commonly double, some¬ 
times treble harvests. These, when 
they consist of a grain so productive 
as rice, the usual crop, can scarce fail 
to yield to their skill, from almost any 
portion of soil that can be at once 
brought into culture, very ample re¬ 
turns. Accordingly there is no spot 
that labour can immediately bring 
under cultivation that is not made to 
yield to it. Hills, even mountains are 
ascended and formed into terraces; 
and water, in that country the great 
productive agent, is led to every part 
by drains, or carried up to it by the in¬ 
genious and simple hydraulic machines 
which have been in use from time im¬ 
memorial among this singular people. 
They effect this the more easily, fr©m 
the soil, even in these situations, being 
very deep and covered with much vege¬ 
table mould. But what yet more than 
this marks the readiness with which 
labour is forced to form the most diffi¬ 
cult materials into instruments, where 
these instruments soon bring to an 
issue the events for which they are 
formed, is the frequent occurrence on 
many of their lakes and rivers, of struc¬ 
tures resembling the floating gardens 
of the Peruvians, rafts covered with 
vegetable soil and cultivated. Labour 
in this way draws from the materials 
on which it acts very speedy returns. 
Nothing can exceed the luxuriance of 


vegetation when the quickening powers 
of a genial sun are ministered to by a 
rich soil and abundant moisture. It is 
otherwise, as we have seen, in cases 
where the return, though copious, is 
distant. European travellers are sur¬ 
prised at meeting these little floating 
farms by the side of swamps which 
only require draining to render them 
tillable. It seems to them strange 
that labour should not rather be be¬ 
stowed on the solid earth, where its 
fruits might endure, than on structures 
that must decay and perish in a few 
years. The people they are among 
think not so much of future y r ~s, as 
of the present time. The effect, e de¬ 
sire of accumulation is of very different 
strength in the one, from what it is in 
the other. The views of the European 
extend to a distant futurity, and he is 
surprised at the Chinese, condemned, 
through improvidence, and want of 
sufficient prospective care, to incessant 
toil, and as he thinks, insufferable 
wretchedness. The views of the 
Chinese are confined to narrower 
bound's; he is content to live from day 
to day, and has learnt to conceive even 
a life of toil a blessing.”* 

When a country has carried produc¬ 
tion as far as in the existing state of 
knowledge it can be carried with an 
amount of return corresponding to the 
average strength of the effective desire 
of accumulation in that country, it has 
reached what is called the stationary 
state ; the state in which no further ad¬ 
dition will be made to capital unless 
there takes place either some improve¬ 
ment in the arts of production, or 
an increase in the strength of the de¬ 
sire to accumulate. In the stationary 
state, though capital does not on the 
whole increase, some persons grow 
richer and others poorer. Those whose 
degree of providence is below the usual 
standard, become impoverished, their 
capital perishes, and makes room for 
the savings of those whose effective de¬ 
sire of accumulation exceeds the ave¬ 
rage. These become the natural pur¬ 
chasers of the land, manufactories, and 
other instruments of production owned 
by their less provident countrymen. 

* Rae, pp. 151—5. 





LAW OF THE INCREASE OF CAPITAL. 107 


What the causes are which make the 
return to capital greater in one country 
than in another, and which, in certain 
circumstances, make it impossible for 
any additional capital to find invest¬ 
ment unless at diminished returns, will 
appear clearly hereafter. In China, 
if that country has really attained, as 
it is supposed to have done, the sta¬ 
tionary state, accumulation has stopped 
when the returns to capital are still as 
high as is indicated by a rate of inte¬ 
rest legally twelve per cent, and prac¬ 
tically varying (it is said) between 
eighteen and thirty-six. It is to be 
presumed therefore that no greater 
amount of capital than the country 
already possesses, can tind employment 
at this high rate of profit, and that any 
lower rate does not hold out to a 
Chinese sufficient temptation to induce 
him to abstain from present enjoyment. 
What a contrast with Holland, where, 
during the most flourishing period of 
its history, the government was able 
habitually to borrow at two per cent, 
and private individuals, on good secu¬ 
rity, at three. Since China is not a 
country like Burmah, or the native 
states of India, where an enormous in¬ 
terest is but an indispensable compen¬ 
sation for the risk incurred from the 
bad faith or poverty of the state, and 
of almost all private borrowers; the 
fact, if fact it be, that the increase of 
capital has come to a stand while the 
returns to it are still so large, denotes 
a much less degree of the effective de¬ 
sire of accumulation, in other words a 
much lower estimate of the future rela¬ 
tively to the present, than that of most 
European nations. 

§ 4. We have hitherto spoken of 
countries in which the average strength 
of the desire to accumulate is short of 
that which, in circumstances of any 
tolerable security, reason and sober 
calculation would approve. We have 
now to speak of others in which it deci¬ 
dedly surpasses that standard. In the 
more prosperous countries of Europe, 
there are to be found abundance of 
prodigals; in some of them (and in 
none more than England) the ordinary 
degree of economy and providence 


among those who live by manual la¬ 
bour cannot be considered high; still, 
in a very numerous portion of the com¬ 
munity, the professional, manufactu¬ 
ring, and trading classes, being those 
who, generally speaking, unite more of 
the means with more of the motives for 
saving than any other class, the spirit 
of accumulation is so strong, that the 
signs of rapidly increasing wealth 
meet every eye : and the great amount 
of capital seeking investment excites 
astonishment, whenever pecnliar cir¬ 
cumstances turning much of it into some 
one channel, such as railway construc¬ 
tion or foreign speculative adventure,, 
bring the largeness of the total amount 
into evidence. 

There are many circumstances, 
which, in England, give a peculiar 
force to the accumulating propensity. 
The long exemption of the country from 
the ravages of war, and the far earlier 
period than elsewhere at which pro¬ 
perty was secure from military violence 
or arbitrary spoliation, have produced a 
long-standing and hereditary confidence 
in the safety of funds when trusted out 
of the owner’s hands, which in most 
other countries is of much more re¬ 
cent origin, and less firmly established. 
The geographical causes which have 
made industry rather than war the 
natural som’ce of power and importance 
to Great Britain, have turned an un¬ 
usual proportion of the most enter¬ 
prising and energetic' characters into 
the direction of manufactures and com¬ 
merce ; into supplying their wants and 
gratifying their ambition by producing 
and saving, rather than by appropria¬ 
ting what has been produced and 
saved. Much also depended on the 
better political institutions of this 
country, which by the scope they have 
allowed to individual freedom of action, 
have encouraged personal activity and 
self-reliance, while by the liberty they 
confer of association and combination, 
they facilitate industrial enterprise on 
a large scale. The same institutions 
in another of their aspects, give a most 
direct and potent stimulus to the desire 
of acquiring wealth. The earlier de¬ 
cline of feudalism having removed or 
much weakened invidious distinctions 



BOOK I. CHAPTER XII. § 1. 


108 

between the originally trading classes ] 
and those who had been accustomed to j 
despise them; and a polity having 
grown up which made wealth the real 
source of political influence ; its acqui¬ 
sition was invested with a factitious 
value, independent of its intrinsic uti¬ 
lity. It became synonymous with power; 
and since power with the common herd 
of mankind gives power, wealth became 
the chief source of personal considera¬ 
tion, and the measure and stamp of 
success in life. To get out of one rank 
in society into the next above it, is the 
great aim of English middle-class life, 
and the acquisition of wealth the 
means. And inasmuch as to be rich 
without industry, has always hitherto 
constituted a step in the social scale 
above those who are rich by means of 
industry, it becomes the object of am¬ 
bition to save not merely as much as 
■will afford a large income while in busi¬ 
ness, but enough to retire from business 
and live in affluence on realized gains. 
These causes have in England been 
greatly aided by that extreme incapa¬ 
city of the people for personal enjoy¬ 
ment, which is a characteristic of 
countries over which puritanism has 
passed. But if accumulation is, on one 
hand, rendered easier by the absence 
of a taste for pleasure, it is, on the 
other, made more difficult by the pre¬ 
sence of a very real taste for expense. 
So strong is the association between 
personal consequence and the signs of 
wealth, that the silly desire for the 
appearance of a large expenditure has 
the force of a passion, among large 
classes of a nation which derives less 
pleasure than perhaps any other in the 
world from what it spends. Owing to this 
circumstance, the effective desire of ac- 


I cumulation has never reached so high 
a pitch in England as it did in Hol¬ 
land, where, there being no rich idle 
class to set the example of a reckless 
expenditure, and the mercantile classes, 
who possessed the substantial power on 
which social influence always waits, 
being left to establish their own scale 
of living and standard of propriety, 
their habits remained frugal and unos¬ 
tentatious. 

In England and Holland, then, for 
a long time past, and now in most 
other countries in Europe (which are 
rapidly following England in the same 
race), the desire of accumulation does 
not require, to make it effective, the 
copious returns which it requires in 
Asia, but is sufficiently called into 
action by a rate of profit so low, that 
instead of slackening, accumulation 
seems now to proceed more rapidly 
than ever; and the second requisite of 
increased production, increase of capi¬ 
tal, shows no tendency to become 
deficient. So far as that element is con¬ 
cerned, production is susceptible of an 
increase without any assignable bounds. 

I'he progress of accumulation would 
no doubt be considerably checked, if the 
returns to capital were to be reduced 
still lower than at present. But why 
should any possible increase of capital 
have that effect? This question 
carries the mind forward to the re¬ 
maining one of the three requisites of 
production. The limitation to produc¬ 
tion, not consisting in any necessary 
limit to the increase of the other two 
elements, labour and capital, must turn 
upon the properties of the only element 
which is inherently, and in itself, 
limited in quantity. It must depend 
on the properties of land. 


CHAPTER XII. 


OP THE LAW OP TnE INCREASE OP PRODUCTION FROM LAND. 


§ 1. Land differs from the other 
■ elements of production, labour and 
capital, in not being susceptible of in¬ 


definite increase. Its extent is limited, 
and the extent of the more productive 
kinds of it more limited still. It is 







LAW OF INCREASE OF PRODUCTION FROM LAND/ 109 


also evident that the quantity of pro¬ 
duce capable of being raised on any 
given piece of land is not indefinite. 
This limited quantity of land, and li¬ 
mited productiveness of it, are the real 
limits to the increase of production. 

That they are the ultimate limits, 
must always have been clearly seen. 
Rut since the final barrier has never 
in any instance been reached ; since 
there is no country in which all the 
land, capable of yielding food, is so 
highly cultivated that a larger produce 
could not (even without supposing any 
fresh advance in agricultural know¬ 
ledge) be obtained from it, and since 
a large portion of the earth’s surface 
still remains entirely uncultivated; it 
is commonly thought, and is very 
natural at first to suppose, that for the 
present all limitation of production or 
population from this source is at an 
indefinite distance, and that ages must 
elapse before any practical necessity 
arises for taking the limiting principle 
into serious consideration. 

I apprehend this to be not only an 
error, but the most serious one, to be 
found in the whole field of political 
economy. The question is more im¬ 
portant and fundamental than any 
other; it involves the whole subject of 
the causes of poverty, in a rich and 
industrious community; and unless 
this one matter be thoroughly under¬ 
stood, it is to no purpose proceeding 
any further in our inquiry. 

g 2. The limitation to production 
from the properties of the soil, is 
not like the obstacle opposed by a 
wall, which stands immovable in one 
particular spot, and offers no hindrance 
to motion short of stopping it entirely. 
We may rather compare it to a highly 
elastic and extensible band, which is 
hardly ever so violently stretched that 
it could not possibly be stretched any 
more, yet the pressure of which is felt 
long before the final limit is reached, 
and felt more severely the nearer that 
limit is approached. 

After a certain, and not very ad¬ 
vanced, stage in the progress of agri¬ 
culture, it is the law of production 
from the land, that in any given state 


of agricultural skill and knowledge, by 
increasing the labour, the produce is 
not increased in an equal degree; 
doubling the labour does not double 
the produce ; or, to express the same 
thing in other words, every increase of 
produce is obtained by a more than 
proportional increase in the applica¬ 
tion of labour to the land. 

This general law of agricultural 
industry is the most important propo¬ 
sition in political economy. Were the' 
law different, nearly all the phenomena 
of the production and distribution of 
wealth would be other than they are. 
The most fundamental errors which 
still prevail on our subject, result from 
not perceiving this law at work under¬ 
neath the more superficial agencies 
on which attention fixes itself; but 
mistaking those agencies for the ulti¬ 
mate causes of effects of which they 
may influence the form and mode, but 
of which it alone determines the 
essence. 

When, for the purpose of raising an 
increase of produce, recourse is had to 
inferior land, it is evident that, so far, 
the produce does not increase in the 
same proportion with the labour. The 
very meaning of inferior land, is land 
which with equal labour returns a 
smaller amount of produce. Land 
may be inferior either in fertility or in 
situation. The one requires a greater 
proportional amount of labour for grow¬ 
ing the produce, the other for carrying 
it to market. If the land A yields a 
thousand quarters of wheat, to a given, 
outlay in wages, manure, &e., and in 
order to raise another thousand re¬ 
course must bo had to the land B, 
which is either less fertile or more 
distant from the market, the two 
thousand quarters will cost more 
than twice as much labour as the 
original thousand, and the produce of 
agriculture will be increased in a less 
ratio than the labour employed in pro¬ 
curing it. 

Instead of cultivating the land B, 
it would be possible, by higher culti¬ 
vation, to make the land A produce 
more. It might be ploughed or har¬ 
rowed twice instead of once, or three 
times instead of twice; it might be 



lio BOOK! CHAPTER XII. §2. 


dug instead of being ploughed ; after 
ploughing, it might be gone over with a 
hoe instead of a harrow, and the soil 
more completely pulverized; it might be 
oftener or more thoroughly weeded; 
the implements used might bs of 
higher tinish, or more elaborate con¬ 
struction; a greater quantity or more 
expensive kinds of manure might be 
applied, or when applied, they might 
be more carefully mixed and incor¬ 
porated with the soil. These are some 
of the modes by which the same land 
may be made to yield a greater pro¬ 
duce ; and when a greater produce 
must be had, some of these are among 
the means usually employed for obtain¬ 
ing it. But, that it is obtained at a 
more than proportional increase of 
expense, is evident from the fact that 
inferior lands are cultivated. Inferior 
lands, or lands at a greater distance 
from the market, of course yield an 
inferior return, and an increasing 
demand cannot be supplied from them 
unless at an augmentation of cost, and 
therefore of price.’ If the additional 
demand could continue to be supplied 
from the superior lands, by applying 
additional labour and capital, at no 
greater proportional cost than that 
at which they yield the quantity first 
demanded of them, the owners or 
farmers of those lands could undersell 
all others, and engross the whole 
market. Lands of a lower degree of 
fertility or in a more remote situation, 
might indeed be cultivated by their 
proprietors, for the sake of subsistence 
or independence; but it never could be 
the interest of any one to farm them 
for profit. That a profit can be made 
from them, sufficient to attract capital 
to such an investment, is a proof that 
cultivation on the more eligible lands 
has reached a point, beyond which any 
greater application of labour and capi¬ 
tal would yield, at the best, no greater 
return than can be obtained at- the 
same expense from less fertile or less 
favourably situated lands. 

The careful cultivation of a well- 
farmed district of England or Scotland 
is a symptom and an effect of the more 
unfavourable terms which the land has 
begun to exact for any increase of its 


fruits. Such elaborate cultivation costs 
much more in proportion, and requires 
a higher price to render it profitable, 
than farming on a more superficial 
system; and would not be adopted if 
access could be had to land of equal 
fertility, previously unoccupied. Where 
there is the choice of raising the in¬ 
creasing supply which society requires, 
from fresh land of as good quality as 
that already cultivated, no attempt is 
made to extract from land anything 
approaching to what it will yield on 
what are esteemed the best European 
modes of cultivating. The land is 

Q 

tasked up to the point at which the 
greatest return is obtained in proportion 
to the labour employed, but no further: 
any additional labour is carried else¬ 
where. “ It is long,” says an intelligent 
traveller in the United States,* “ before 
an English eye becomes reconciled to 
the lightness of the crops and the care¬ 
less farming (as we should call it) which 
is apparent. One forgets that where 
land is so plentiful and labour so dear 
as it is here, a totally different prin¬ 
ciple must be pursued to that which 
prevails in populous countries, and that 
the consequence will of course be a 
want of tidiness, as it were, and finish, 
about everything which requires la¬ 
bour.” Of the two causes mentioned, 
the plentifulness of land seems to me 
the true explanation, rather than the 
dearness of labour; for, however dear 
labour may be, when food is wanted, 
labour will always be applied to pro¬ 
ducing it in preference to anything 
else. But this labour is more effective 
for its end by being applied to fresh 
soil, than if it were employed in bring¬ 
ing the soil already occupied into 
higher cultivation. Only when no soils 
remain to be broken up but such as 
either from distance or inferior quality 
require a considerable rise of price to 
render their cultivation profitable, can 
it become advantageous to apply the 
high farming of Europe to any American 
lands ; except, perhaps, in the imme¬ 
diate vicinity of towns, where saving 
in cost of carnage may compensate for 

* Letters from America, by John Robert 
Godley, vol. i. p. 42. See also Ljell’s Travels 
in America, vol, ii. p, 83, 







LAW OF INCREASE OF PRODUCTION FROM LAND. Ill 


great inferiority in the return from the 
soil itself. As American farming is to 
English, so is the ordinary English to 
that of Flanders, Tuscany, or the Terra 
di Lavoro; where by the application of 
a far greater quantity of labour there 
is obtained a considerably larger gross 
produce, but on such terms as would 
never be advantageous to a mere spe¬ 
culator for profit, unless made so by 
much higher prices of agricultural 
produce. 

The principle which has now been 
stated must be received, no doubt, with 
certain explanations and limitations. 
Even after the land is so highly culti¬ 
vated that the mere application of ad¬ 
ditional labour, or of an additional 
amount of ordinary dressing, would 
yield no return proportioned to the ex¬ 
pense, it may still happen that the 
application of a much greater additional 
labour and capital to improving the 
soil itself, by draining or permanent 
manures, would be as liberally remu¬ 
nerated by the produce, as any portion 
of the labour and capital already em¬ 
ployed. It would sometimes be much 
more amply remunerated. This could 
not be, if capital always sought and 
found the most advantageous employ¬ 
ment; but if the most advantageous 
employment has to wait longest for its 
remuneration, it is only in a rather ad¬ 
vanced stage of industrial development 
that the preference will be given to it; 
and even in that advanced stage, the 
laws or usages connected with property 
in land and the tenure of farms, are 
often such as to prevent the disposable 
capital of the country from flowing 
freely into the channel of agricultural 
improvement: and hence the increased 
supply, required by increasing popula¬ 
tion, is sometimes raised at an aug¬ 
menting cost by higher cultivation, 
when the means of producing it without 
increase of cost are known and acces¬ 
sible. There can be no doubt, that if 
capital were forthcoming to execute, 
within the next year, all known and 
recognised improvements in the land 
of the United Kingdom which would 
pay at the existing prices, that is, 
which would increase the produce in 
as great or a greater ratio than the 


expense; the result would be such 
(especially if we include Ireland in the 
supposition) that inferior land would 
not for a long time require to be brought 
under tillage : probably a considerable 
part of the less productive lands now 
cultivated, which are not particularly 
favoured by situation, would go out of 
culture; or (as the improvements in 
question are not so much applicable to 
good land, but operate rather by con¬ 
verting bad land into good) the con¬ 
traction of cultivation might principally 
take place by a less high dressing and 
less elaborate tilling of land generally; 
a falling back to something nearer the 
character of American farming; such 
only of the poor lands being altogether 
abandoned as were not found suscep¬ 
tible of improvement. And thus the 
aggregate produce of the whole culti¬ 
vated land would bear a larger propor¬ 
tion than before to the labour expended 
on it; and the general law of diminish¬ 
ing return from land would have un¬ 
dergone, to that extent, a temporary 
supersession. No one, however, can 
suppose that even in these circum¬ 
stances, the whole produce required for 
the country could be raised exclusively 
from the best lands, together with those 
possessing advantages of situation to 
place them on a par with the best. 
Much would undoubtedly continue to 
be produced under less advantageous 
conditions, and with a smaller propor¬ 
tional return, than that obtained from 
the best soils and situations. And in 
proportion as the further increase of 
population required a still greater ad¬ 
dition to the supply, the general law 
would resume its course, and the further 
augmentation would be obtained at a 
more than proportionate expense of 
labour and capital. 

§ 3. That the produce of land in¬ 
creases, cceteri-s paribus , in a diminish¬ 
ing ratio to the increase in the labour 
employed, is a truth more often ignored 
or disregarded than actually denied. 
It has, however, met with a direct im- 
pugner in the well-known American 
political economist, Mr. H. C. Carey, 
who maintains, that the real law of 
agricultural industry is the very reverse; 




112 BOOR I. CHAPTER XII. § 3. 


the produce increasing in a greater 
ratio than the labour, or in other words, 
affording to labour a perpetually in¬ 
creasing return. To substantiate this 
assertion, he argues, that cultivation 
does not begin with the better soils, 
and extend from them, as the demand 
increases, to the poorer, but begins 
with the poorer, and does not, till long 
after, extend itself to the more fertile. 
Settlers in a new country invariably 
commence on the high and thin lands; 
the rich but swampy soils of the river 
bottoms cannot at first be brought into 
cultivation, by reason of their un- 
healthiness, and of the great and pro¬ 
longed labour required for clearing and 
draining them. As population aud 
wealth increase, cultivation travels 
down the hill sides, clearing them as 
it goes, and the most fertile soils, those 
of the low grounds, are generally (he 
even says universally) the latest culti¬ 
vated. These propositions, with the 
inferences which Mr. Carey draws 
from them, are set forth at much 
length in his latest and most elaborate 
treatise, “Principles of Social Science 
and he considers them as subverting 
the very foundation of what he calls 
the English political economy, with all 
its practical consequences, especially 
the doctrine of free trade. 

As far as words go, Mr. Ca ey has 
a good case against several of the 
highest authorities in political economy, 
who certainly did enunciate in too 
universal a manner the law which they 
laid down, not remarking that it is not 
true of the first cultivation in a newly- 
settled country. Where population is 
thin and capital scanty, land which 
requires a large outlay to render it 
fit for tillage must remain untilled; 
though such lands, when their time 
lias come, often yield a greater pro¬ 
duce than those earlier cultivated, not 
only absolutely, but proportionally to 
the labour employed, even if we include 
that which had been expended in 
originally fitting them for culture. 
But it is not pretended that the 
law of diminishing return was opera¬ 
tive from the very beginning of society; 
and though some political economists 
may have believed it to come into 


operation earlier than it does, it begins 
quite early enough to support the 
conclusions they founded on it. Mr. 
Carey will hardly assert that in any 
old country—in England and France, 
for example—the lands left waste are, 
or have for centuries been, more 
naturally fertile than those under 
tillage. Judging even by his own im¬ 
perfect test, that of local situation— 
how imperfect, I need not stop to point 
out—is it true that in England or 
France at the present day, the uncul¬ 
tivated part of the soil consists of the 
plains and valleys, and the cultivated 
of the hills ? Every one knows, on the 
contrary, that it is the high lands and 
thin soils which are left to nature ; and 
when the progress of population de¬ 
mands an increase of cultivation, the 
extension is from the plains to the hills. 
Once in a century, perhaps, a Bedford 
Level may be drained, or a Lake of 
Harlem pumped out; but these are 
slight and transient exceptions to the 
normal progress of things ; and in old 
countries which are at all advanced in 
civilization, little of this sort remains 
to bo done.* 

Mr. Carey himself unconsciously 
bears the strongest testimony to the 
reality of the law he contends against; 
for one of the propositions most strenu¬ 
ously maintained by him is, that the 
raw products of the soil, in an advanc¬ 
ing community, steadily tend to rise in 
price. Now, the most elementary 
truths of political economy show that 
this could not happen, unless the cost 
of production, measured in labour, of 
those products, tended to rise. If the 
application of additional labour to the 
land was, as a general rule, attended 
with an increase in the proportional 
return, the price of produce, instead of 
rising, must necessarily fall as society 
advances, unless the production of gold 

* Ireland may be alleged as an exception; 
a large fraction of the entire soil of that 
country being still incapable of cultivation 
for want of drainage. But, though Ireland 
is an old country, unfortunate social and 
political circumstances have kept it a poor 
and backward one. Neither is it at all cer¬ 
tain that the bogs of Ireland, if drained and 
brought under tillage, would take their place 
along with Mr. Carey’s fertile river bottoms, 
or among any but the poorer soils. 



LAW OF INCREASE OF PRODUCTION FROM LAND. 113 


and silver fell still more: a case so 
rare, that there are only two periods in 
all history when it is known to have 
taken place: the one, that which fol¬ 
lowed the opening of the Mexican and 
Peruvian mines; the other, that in 
which we now live. At all known 
periods except these two, the cost of 
production of the precious metals has 
been either stationary or rising. If, 
therefore, it be true that the tendency of 
agricultural produce is to rise in money 
price as wealth and population increase, 
there needs no other evidence that the 
labour required for raising it from the 
soil tends to augment when a greater 
quantity is demanded. 

I do not go so far as Mr. Carey: I 
do not assert that the cost of production 
and consequently the price, of agricul¬ 
tural produce, always and necessarily 
rises as population increases. It tends 
to do so, but the tendency may be, 
■and sometimes is, even during long 
periods, held in check. The effect 
<loes not depend on a single principle, 
but on two antagonizing principles. 
There is another agency, in habitual 
antagonism to the law of diminishing 
return from land ; and to the considera¬ 
tion of this we shall now proceed. It 
is no other than the progress of civili¬ 
zation. I use this general and some¬ 
what vague expression, because the 
things to be included are so various, 
that hardly any term of a more re¬ 
stricted signification would comprehend 
them all. 

Of these, the most obvious is the 
progress of agricultural knowledge, 
skill, and invention. Improved pro¬ 
cesses of agriculture are of two kinds : 
some enable the land to yield a greater 
absolute produce, without an equivalent 
increase of labour; others have not the 
power of increasing the produce, but 
have that of diminishing the labour and 
• expense by which it is obtained. 
Among the first are to be reckoned the 
disuse of fallows, by means of the rota¬ 
tion of crops ; and the introduction of 
new articles of cultivation capable of 
entering advantageously into the rota¬ 
tion. The change made in British 
agriculture towards the close of the 
last century, by the introduction of 
P. E. 


turnip husbandry, is spoken of as 
amounting to a revolution. These im¬ 
provements operate not only by enabling 
the land to produce a crop every year, 
instead of remaining idle one year in 
every two or three to renovate its 
powers, but also by direct increase of 
its productiveness ; since the great ad¬ 
dition made to the number of cattle 
by the increase of their food, affords 
more abundant manure to fertilize the 
corn lands. Next in order comes the 
introduction of new articles of food 
containing a greater amount of sus¬ 
tenance, like the potato, or more pro¬ 
ductive species or varieties of the same 
plant, such as the Swedish turnip. In 
the same class of improvements must 
be placed a better knowledge of the 
properties of manures, and of the most 
effectual modes of applying them ; the 
introduction of new and more powerful 
fertilizing agents, such as guano, and 
the conversion to the same purpose, of 
substances previously wasted; inven¬ 
tions like subsoil-ploughing or tile¬ 
draining ; improvements in the breed 
or feeding of labouring cattle ; aug¬ 
mented stock of the animals which con¬ 
sume and convert into human food 
what would otherwise be wasted; and 
the like. The other sort of improve¬ 
ments, those which diminish labour, 
but without increasing the capacity of 
the land to produce, are such as the 
improved construction of tools ; the in¬ 
troduction of new instruments which 
spare manual labour, as the winnow¬ 
ing and threshing machines ; a more 
skilful and economical application of 
muscular exertion, such as the intro¬ 
duction, so slowly accomplished in 
England, of Scotch ploughing, with 
two horses abreast and one man, in¬ 
stead of three or four horses in a team 
and two men, &c. These improve¬ 
ments do not add to the productiveness 
of the land, but they are equally calcu¬ 
lated with the former to counteract the 
tendency in the cost of production of 
agricultural produce, to rise with the 
progress of population and demand. 

Analogous in effect to this second 
class of agricultural improvements, are 
improved means of communication. 
Good roads are equivalent to good tools. 




114 BOOK I. CHAPTER XII. § 3. 


It is of no consequence whether the 
economy of labour takes place in ex¬ 
tracting the produce from the soil, or 
in conveying it to the place where it is 
to be consumed. Not to say in addi¬ 
tion, that the labour of cultivation 
itself is diminished by whatever lessens 
the cost of bringing manure from a 
distance, or facilitates the many opera¬ 
tions of transport from place to place 
which occur within the bounds of the 
farm. Railways and canals are virtu¬ 
ally a diminution of the cost of produc¬ 
tion of all things sent to market by 
them ; and literally so of all those, the 
appliances and aids for producing 
which, they serve to transmit. By 
their means land can be cultivated, 
which would not otherwise have re¬ 
munerated the cultivators without a 
rise of price. Improvements in naviga¬ 
tion have, with respect to food or 
materials brought from beyond sea, 
a corresponding effect. 

From similar considerations, it ap¬ 
pears that many purely mechanical 
improvements, which have, apparently 
at least, no peculiar connexion with 
agriculture, nevertheless enable a given 
amount of food to be obtained with a 
smaller expenditure of labour. A great 
improvement in the process of melting 
iron, would tend to cheapen agricultural 
implements, diminish the cost of rail¬ 
roads, of waggons and carts, ships, and 
perhaps buildings, and many other 
things to which iron is not at present 
applied, because it is too costly; and 
would thence diminish the cost of pro¬ 
duction of food. The same effect would 
follow from an improvement in those 
processes of what may be termed 
manufacture, to which the material of 
food is subjected after it is separated 
from the ground. The first applica¬ 
tion of wind or water power to grind 
corn, tended to cheapen bread as much 
as a very important discovery in agri¬ 
culture would have done; and any 
great improvement in the construction 
of corn-mills, would have, in proportion, 
a similar influence. The effects of 
cheapening locomotion have been al¬ 
ready considered. There are also 
engineering inventions which facilitate 
all great operations on the earth’s 


surface. An improvement in the art 
of taking levels is of importance to 
draining, not to mention canal and 
railway making. The fens of Holland, 
and of some parts of England, are 
drained by pumps worked by the wind 
or by steam. Where canals of irriga¬ 
tion, or where tanks or embankments 
are necessary, mechanical skill is a 
great resource for cheapening pro¬ 
duction. 

Those manufacturing improvements 
which cannot be made instrumental to- 
facilitate, in any of its stages, the 
actual production of food, and there¬ 
fore do not help to counteract or retard 
the diminution of the proportional re¬ 
turn to labour from the soil, have, 
however, another effect, which is practi¬ 
cally equivalent. What they do not 
prevent, they yet, in some degree, 
compensate for. 

The materials of manufactures being 
all drawn from the land, and many of 
them from agriculture, which supplies 
in particular the entire material of 
clothing; the general law of produc¬ 
tion from the land, the law of diminish¬ 
ing return, must in the last resort be 
applicable to manufacturing as well as 
to agricultural industry. As population 
increases, and the power of the land to 
yield increased produce is strained 
harder and harder, any additional 
supply of material, as well as of food, 
must be obtained by a more than pro¬ 
portionally increasing expenditure of 
labour. But the cost of the material 
forming generally a very small portion 
of the entire cost of the manufacture, 
the agricultural labour concerned in 
the production of manufactured goods 
is but a small fraction of the whole 
labour worked up in the commodity. 
All the rest of the labour tends con¬ 
stantly and strongly towards diminu¬ 
tion, as the amount of production in¬ 
creases. Manufactures are vastly more 
susceptible than agriculture, of me¬ 
chanical improvements, and contri¬ 
vances for saving labour; and it has 
already been seen how greatly the 
division of labour, and its skilful and 
economical distribution, depend on the 
extent of the market, and on the possi¬ 
bility of production in large masses* 





LAW OF INCREASE OF PRODUCTION FROM LAND. 


In manufactures, accordingly, the 
causes tending to increase the product¬ 
iveness of industry, preponderate 
greatly over the one cause which tends 
to diminish it: and the increase of 
production, called forth by the progress 
of society, takes place, not at an in¬ 
creasing, but at a continually diminish¬ 
ing proportional cost. This fact has 
manifested itself in the progressive fall 
of the prices and values of almost every 
kind of manufactured goods during two 
centuries past; a fall accelerated by 
the mechanical inventions of the last 
seventy or eighty years, and susceptible 
of being prolonged and extended beyond 
any limit which it would be safe to 
specify. 

Now it is quite conceivable that the 
efficiency of agricultural labour might 
be undergoing, with the increase of 
produce, a gradual diminution ; that 
the price of 1‘ood, in consequence, might 
be progressively rising, and an ever 
growing proportion of the population 
might be needed to raise food for the 
whole; while yet the productive power 
of labour in all other branches of in¬ 
dustry might be so rapidly augmented, 
that the required amount of labour could 
be spared from manufactures, and 
nevertheless a greater produce be ob¬ 
tained, and the aggregate wants of 
the community be on the whole better 
supplied, than before. The benefit 
might even extend to the poorest class. 
The increased cheapness of clothing and 
lodging might make up to them for 
the augmented cost of their food. 

There is, thus, no possible improve¬ 
ment in the arts of production which 
does not in one or another mode exer¬ 
cise .an antagonist influence to the 
law of diminishing return to agricultu¬ 
ral labour. Nor is it only industrial 
improvements which have this effect. 
Improvements in government, and al¬ 
most every kind of moral and social 
advancement, operate in the same 
manner. Suppose a country in the 
condition of France before the Revolu¬ 
tion : taxation imposed almost exclu¬ 
sively on the industrious classes, and 
on such a principle as to be an actual 
penalty on production ; and no redress 
obtainable for wf injury to property or 


115 

j person, when inflicted by people of 
rank or court influence. Was not 
the hurricane which swept away this 
system of things, even if we look no 
further than to its effect in augment¬ 
ing the productiveness of labour, equiva¬ 
lent to many industrial inventions? The 
removal of a fiscal burthen on agricul¬ 
ture, such as tithe, has the same effect 
as if the labour necessary for obtaining 
the existing produce were suddenly 
reduced one-tenth. The abolition of 
corn laws, or of any other restrictions 
which prevent commodities from being 
produced where the cost of their pro¬ 
duction is lowest, amounts to a vast 
improvement in production. When 
fertile land, previously reserved as 
hunting ground, or for any other pur¬ 
pose of amusement, is set free for cul¬ 
ture, the aggregate productiveness 
of agricultural industry is increased. 
It is well known what has been the 
effect in England of badly administered 
poor laws, and the still worse effect in 
Ireland of a bad system of tenancy, in 
rendering agricultural labour slack and 
ineffective. No improvements operate 
more directly upon the productiveness 
of labour than those in the tenure of 
farms, and in the laws relating to 
landed property. The breaking up of 
entails, the cheapening of the transfer 
of property, and whatever else pro¬ 
motes the natural tendency of land in 
a system of freedom, to pass out of 
hands which can make little of it into 
those which can make more ; the sub¬ 
stitution of long leases for tenancy at 
will, and of any tolerable system of 
tenancy whatever for the wretched 
cottier system; above all, the acqui¬ 
sition of a permanent interest in the 

I soil by the cultivators of ,it; all these 
things are as real, and some of them 
as great, improvements in production, 
as the invention of the spinning jenny 
or the steam engine. 

We may say the same of improve¬ 
ment in education. The intelligence 
of the workman is a most important 
clement in the productiveness of labour. 
So low, in some of the most civilized 
countries, is the present standard of in¬ 
telligence, that there is hardly any 
source front which a more indefinite 

I 2 






116 BOOK I. CHAPTER XII. § 3. 


amount of improvement may be looked 
for in productive power, than by en¬ 
dowing with brains those who now 
have only hands. The carefulness, 
economy, and general trustworthiness 
of labourers are as important as their 
intelligence. Friendly relations, and 
a community of interest and feeling 
between labourers and employers, are 
eminently so: I should rather say, 
would be ; for I know not where any 

such sentiment of friendly alliance now 

»/ 

exists. Nor is it only in the labouring 
class that improvement of mind and 
character operates with beneficial 
effect even on industry. In the rich 
and idle classes, increased mental 
energy, more solid instruction, and 
stronger feelings of conscience, public 
spirit, or philanthropy, would qualify 
them to originate and promote the 
most valuable improvements, both in 
the economical resources of their coun¬ 
try, and in its institutions and customs. 
To look no further than the most ob¬ 
vious phenomena; the backwardness 
of French agriculture in the precise 
points in which benefit might be ex¬ 
pected from the influence of an edu¬ 
cated class, is partly accounted for by 
the exclusive devotion of the richer 
landed proprietors to town interests 
and town pleasures. There is scarcely 
any possible amelioration of human 
affairs which would not, among its 
other benefits, have a favourable 
operation, direct or indirect, upon the 
productiveness of industry. The in¬ 
tensity of devotion to industrial occu¬ 
pations would indeed in many cases be 
moderated by a more liberal and genial 
mental culture, but the labour actually 
bestowed on those occupations would 
almost always be rendered more effec¬ 
tive. 

Before pointing out the principal 
inferences to be drawn from the nature 
of the two antagonist forces by which 
the productiveness of agricultural in¬ 
dustry is determined, we must observe 
that what we have said of agriculture 
is true, with little variation, of the 
other occupations which it represents ; 


of all the arts which extract materials 
from the globe. Mining industry, for 
example, usually yields an increase of 
produce at a more than proportional 
increase of expense. It does worse, 
for even its customary annual produce 
requires to be extracted by a greater 
and greater expenditure of labour and 
capital. As a mine does not repro¬ 
duce the coal or ore taken from it, not 
only are all mines at last exhausted, 
but even when they as yet show no 
signs of exhaustion, they must be 
worked at a continually increasing 
cost; shafts must be sunk deeper, 
galleries driven farther, greater power 
applied to keep them clear of water; 
the produce must be lifted from a 
greater depth, or conveyed a greater 
distance. The law of diminishing 
return applies therefore to mining, in 
a still more unqualified sense than to 
agriculture: but the antagonizing 
agency, that of improvements in pro¬ 
duction, also applies in a still greater 
degree. Mining operations are more 
susceptible of mechanical improve¬ 
ments than agricultural: the first 
great application of the steam engine 
was to mining; and there are un¬ 
limited possibilities of improvement in 
the chemical processes by which the 
metals are extracted. There is an¬ 
other contingency, of no unfrequent oc¬ 
currence, which avails to counterba¬ 
lance the progress of all existing mines 
towards exhaustion: this is, the dis¬ 
covery of new ones, equal or superior 
in richness. 

To resume; all natural agents 
which are limited in quantity, are not 
only limited in their ultimate produc¬ 
tive power, but, long before that power 
is stretched to the utmost, they yield 
to any additional demands on pro¬ 
gressively harder terms. This law 
may however be suspended, or tempo¬ 
rarily controlled, by whatever adds to 
the general power of mankind over na¬ 
ture ; and especially by any extension 
oi their knowledge, and their conse¬ 
quent command, of the properties and 
powers of natural agents. 




CONSEQUENCES OF THE FOREGOING LAWS. 


117 


CHAPTER XIII. 

I 

CONSEQUENCES OF THE FOREGOING LAW’S. 


§ 1. From the preceding exposition 
it appears that the limit to the increase 
of production is twofold; from defi¬ 
ciency of capital, or of land. Production 
comes to a pause, either because the 
effective desire of accumulation is not 
sufficient to give rise to any further in¬ 
crease of capital, or because, however 
disposed the possessors of surplus in¬ 
come may be to save a portion of it, 
the limited land at the disposal of the 
community does not permit additional 
capital to be employed with such a re¬ 
turn, as would be an equivalent to them 
for their abstinence. 

In countries where the principle of 
accumulation is as weak as it is in the 
various nations of Asia ; where people 
will neither save, nor work to obtain 
the means of saving, unless under the 
inducement of enormously high profits, 
nor even then if it is necessary to wait 
a considerable time for them ; where 
either productions remain scanty, or 
drudgery great, because there is neither 
capital forthcoming nor forethought 
sufficient for the adoption of the con¬ 
trivances by which natural agents are 
made to do the work of human labour; 
the desideratum for such a country, 
economically considered, is an increase 
of industry, and of the effective desire 
of accumulation. The means are, first, 
a better government; more complete 
security of property; moderate taxes, 
and freedom from arbitrary exaction 
under the name of taxes ; a more per¬ 
manent and more advantageous tenure 
of land, securing to the cultivator as 
far as possible the undivided benefits 
of the industry, skill, and economy he 
may exert. Secondly, improvement of 
the public intelligence; the decay of 
usages or superstitions which interfere 
with the effective employment of in¬ 
dustry ; and the growth of mental ac¬ 
tivity, making the people alive to new 
objects of desire. Thirdly, the intro¬ 
duction of foreign arts, which raise the 
returns derivable from additional capi¬ 


tal, to a rate corresponding to the low 
strength of the desire of accumulation; 
and the importation of foreign capital, 
which renders the increase of produc¬ 
tion no longer exclusively dependent 
on the thrift or providence of the in¬ 
habitants themselves, while it places 
before them a stimulating example, 
and by instilling new ideas and break¬ 
ing the chains of habit, if not by im¬ 
proving the actual condition of the 
population, tends to create in them 
new wants, increased ambition, and 
greater thought for the future. These 
considerations apply more or less to 
all the Asiatic populations, and to the 
less civilized and industrious part of 
Europe, as Russia, Turkey, Spain, and 
Ireland. 

§ 2. But there are other countries, 
and England is at the head of them, in 
which neither the spirit of industry nor 
the effective desire of accumulation 
need any encouragement; where the 
people will toil hard for a small remu¬ 
neration, and save much for a small 
profit; where, though the general 
thriftiness of the labouring class is 
much below what is desirable, the 
spirit of accumulation in the more 
prosperous part of the community re¬ 
quires abatement rather than increase. 
In these countries there would never 
be any deficiency of capital, if its in¬ 
crease were never checked or brought 
to a stand by too great a diminution 
of its returns. It is the tendency of 
the returns to a progressive diminution, 
which causes the increase of produc¬ 
tion to be often attended with a dete¬ 
rioration in the condition of the 
producers; and this tendency, which 
would in time put an end to increase 
of production altogether, is a result of 
the necessary and inherent conditions 
of production from the land. 

In all countries which have passed 
beyond a rather early stage in the pro¬ 
gress of agriculture, every increase in 



118 BOOK!. CHAPTER XIII. §2. 


the demand for food, occasioned by 
increased population, will always, un¬ 
less there is a simultaneous improve¬ 
ment in production, diminish the share 
which on a fair division would fall to 
each individual. An increased pro¬ 
duction, in default of unoccupied tracts 
of fertile land, or of fresh improve¬ 
ments tending to cheapen commo¬ 
dities, can never be obtained but by 
increasing the labour in more than the 
same proportion. The population must 
either work harder, or eat less, or ob¬ 
tain their usual food by sacrificing a 
part of their other customary comforts. 
Whenever this necessity is postponed, 
notwithstanding an increase of popula¬ 
tion, it is because the improvements 
which facilitate production continue 
progressive; because the contrivances 
of mankind for making their labour 
more effective, keep up an equal 
struggle with nature, and extort fresh 
resources from her reluctant powers as 
fast as human necessities occupy and 
engross the old. 

From this, results the important 
corollary, that the necessity of restrain¬ 
ing population is not, as many persons 
believe, peculiar to a condition of great 
inequality of property. A greater num¬ 
ber of people cannot, in any given 
state of civilization, be collectively so 
well provided for as a smaller. The 
niggardliness of nature, not the injus¬ 
tice of society, is the cause of the 
penalty attached to over-population. 
An unjust distribution of wealth does 
not even aggravate the evil, but, at 
most, causes it to be somewhat earlier 
felt. It is in vain to say, that all 
mouths which the increase of mankind 
calls into existence, bring with them 
hands. The new mouths require as 
much food as the old ones, and the 
hands do not produce as much. If all 
instruments of production were held in 
joint property by the whole people, 
and the produce divided with perfect 
equality among them, and if in a 
society thus constituted, industry were 
as energetic and the produce as ample 
as at present, there would be enough 
to make all the existing population ex¬ 
tremely comfortable; but when that 
population had doubled itself, as, with 


the existing habits of the people, under 
such an encouragement, it undoubtedly 
would in little more than twenty years, 
what would then be their condition ? 
Unless the arts of production were in 
the same time improved in an almost 
unexampled degree, the inferior soils 
which must be resoi’ted to, and the 
more laborious and scantily remunera¬ 
tive cultivation which must be em¬ 
ployed on the superior soils, to procure 
food for so much larger a population, 
would, by an insuperable necessity, 
render every individual in the com¬ 
munity poorer than before. If the 
population continued to increase at the 
same rate, a time would soon arrive 
when no one would have more than 
mere necessaries, and, soon after, a 
time when no one would have a suffi¬ 
ciency of those, and the further in¬ 
crease of population would be arrested 
by death. 

Whether, at the present or any 
other time, the produce of industry, 
proportionally to the labour employed, 
is increasing or diminishing, and the 
average condition of the people im¬ 
proving or deteriorating, depends upon 
whether population is advancing faster 
than improvement, or improvement 
than population. After a degree of 
density has been attained, sufficient 
to allow the principal benefits of 
combination of labour, all further 
increase tends in itself to mischief, 
so far as regards the average con¬ 
dition of the people ; but the progress 
of improvement has a counteracting 
operation, and allows of increased 
numbers without any deterioration, 
and even consistently with a higher 
average of comfort. Improvement 
must here be understood in a wide 
sense, including not only new in¬ 
dustrial inventions, or an extended 
use of those already known, but im¬ 
provements in institutions, education, 
opinions, and human affairs generally, 
provided they tend, as almost all im¬ 
provements do, to give new motives or 
new facilities to production. If the 
productive powers of the country in¬ 
crease as rapidly as advancing num¬ 
bers call for an augmentation of pro¬ 
duce, it is not necessary to obtain that 




CONSEQUENCES OF THE FOREGOING LAWS. 


-augmentation by the cultivation of 
soils more sterile than the worst 
already under culture, or by applying 
additional labour to the old soils at a 
diminished advantage; or at all events 
this loss of power is compensated by 
the increased efficiency with which, in 
the progress of improvement, labour is 
employed in manufactures. In one 
way or the other, the increased popula¬ 
tion is provided for, and all are as well 
off as before. But if the growth of 
human power over nature is suspended 
or slackened, and population does not 
slacken its increase; if, with only 
the existing command over natural 
agencies, those agencies are called 
upon for an increased produce; this 
greater produce will not be afforded 
to the increased population, without 
either demanding on the average a 
greater effort from each, or on the 
average reducing each to a smaller 
ration out of the-aggregate produce. 

As a matter of fact, at some periods 
the progress of population has been the 
more rapid of the two, at others that 
of improvement. In England during 
• along interval preceding the French 
Revolution, population increased slowly; 
but the progress of improvement, at 
least in agriculture, would seem to have 
been still slower, since though nothing 
occurred to lower the value of the 
precious metals, the price of corn rose 
considerably, and England, from an 
exporting, became an importing coun¬ 
try. This evidence, however, is short 
of conclusive, inasmuch as the extra¬ 
ordinary number of abundant seasons 
during the first half of the century, not 
continuing during the last, was a 
cause of increased price in the later 
period, extrinsic to the ordinary pro¬ 
gress of society. Whether during the 
same period improvements in manufac¬ 
tures, or diminished cost of imported 
commodities, made amends for the 
diminished productiveness of labour on 
the land, is uncertain. But ever since 
the great mechanical inventions of 
Watt, Arkwright, and their cotempo- 
raries, the return to labour has pro¬ 
bably increased as fast as the popula¬ 
tion ; and would have outstripped it, if 
that very augmentation of return had 


119 

not called forth an additional por¬ 
tion of the inherent power of multipli¬ 
cation in the human species. During 
the twenty or thirty years last elapsed, 
so rapid has been the extension of 
improved processes of agriculture, that 
even the land yields a greater produce 
in proportion to tire labour employed ; 
the average price of corn had become 
decidedly lower, even before the repeal 
of the corn laws v had so materially 
lightened, for the time being, the pres¬ 
sure of population upon production. 
But though improvement may during 
a certain space of time keep up with, 
or even surpass, the actual increase of 
population, it assuredly never comes 
up to the rate of increase of which 
population is capable: and nothing 
could have prevented a general dete¬ 
rioration in the condition of the human 
race, were it not that population has 
in fact been restrained. Had it been 
restrained still more, and the same im¬ 
provements taken place, there would 
have been a larger dividend than there 
now is, for the nation or the species at 
large. The new ground wrung from 
nature by the improvements would not 
have been all used up in the support of 
mere numbers. Though the gross 
produce would not have been so great, 
there would have been a greater pro¬ 
duce per head of the population. 

§ 3. When the growth of numbers 
outstrips the progress of improvement, 
and a country is driven to obtain the 
means of subsistence on terms more 
and more unfavourable, by the inability 
of its land to meet additional demands 
except on more onerous conditions; 
there are two expedients by which it 
may hope to mitigate that disagreeable 
necessity, even though no change 
should take place in the habits of the 
people with respect to their rate of in¬ 
crease. One of these expedients is the 
importation of food from abroad. The 
other is emigration. 

The admission of cheaper food from 
a foreign country, is equivalent to an 
agricultural invention by which food 
could be raised at a similarly dimi¬ 
nished cost at home. It equally in¬ 
creases the productive power of labour. 




BOOK I. CHAPTER XIII. § 3. 


120 

The return was, before, so much food 
for so much labour employed in the 
growth of food: the return is now, a 
greater quantity of food, for the same 
labour employed in producing cottons 
or hardware, or some other commodity 
to be given in exchange for food. The 
one improvement, like the other, throws 
back the decline of the productive 
power of labour by a certain distance: 
but in the one case as in the other, it 
immediately resumes its course; the 
tide which has receded, instantly be¬ 
gins to re-advance. It might seem, 
indeed, that when a country draws its 
supply of food from so wide a surface 
as the whole habitable globe, so little 
impression can be produced on that 
great expanse by any increase of mouths 
in one small corner of it, that the in¬ 
habitants of the country may double 
and treble their numbers, without feel¬ 
ing the effect in any increased tension 
of the springs of production, or any en¬ 
hancement of the price of food through¬ 
out the world. But in this calculation 
several things are overlooked. 

In the first place, the foreign regions 
from which corn can be imported do 
not comprise the whole globe, but those 
parts of it almost alone, which are in 
the immediate neighbourhood of coasts 
or navigable rivers. The coast is the 
part of most countries which is earliest 
and most thickly peopled, and has sel¬ 
dom any food to spare. The chief 
source of supply, therefore, is the strip 
of country along the banks of some 
navigable river, as the Nile, the Vis¬ 
tula, or the Mississippi; and of such 
there is not, in the productive regions 
of the earth, so great a multitude, as 
to suffice during an indefinite time for 
a rapidly growing demand, without an 
increasing strain on the productive 
powers of the soil. To obtain auxiliary 
supplies of corn from the interior in 
any abundance, would, in the existing 
state of the communications, be hope¬ 
less. By improved roads, and eventu¬ 
ally by canals and railways, the obstacle 
will be so reduced as not to be insuper¬ 
able : but this is a slow progress; in 
all the food-exporting countries except 
America, a very slow progress; and 
one which cannot keep pace with popu¬ 


lation, unless the increase of the last is- 
very effectually restrained. 

In the next place, even if the supply 
were drawn from the whole instead of 
a small part of the surface of the ex¬ 
porting countries, the quantity of food 
would still be limited, which could be 
obtained from them without an increase 
of the proportional cost. The countries 
which export food may be divided into 
two classes; those in which the effec¬ 
tive desire of accumulation is strong, 
and those in which it is weak. In 
Australia and the United States of 
America, the effective desire of accu¬ 
mulation is strong; capital increases, 
first, and the production of food might 
be very rapidly extended. But in such 
countries population also increases with, 
extraordinary rapidity. Their agricul¬ 
ture has to provide for their own ex¬ 
panding numbers, as well as for those 
of the importing countries. They must, 
therefore, from the nature of the case, 
be rapidly driven, if not to less fertile, 
at least what is equivalent, to remoter 
and less accessible lands, and to modes 
of cultivation like those of old countries, 
less productive in proportion to the 
labour and expense. 

But the countries which have at the- 
same time cheap food and great indus¬ 
trial prosperity are few, being only 
those in which the arts of civilized life 
have been transferred full grown to a 
rich and uncultivated soil. Among old 
countries, those which are able to ex¬ 
port food, are able only because their 
industry is in a very backward state; 
because capital, and hence population, 
have never increased sufficiently to 
make food rise to a higher price. Such 
countries are Russia, Poland, and the 
plains of the Danube. In those regions 
the effective desire of accumulation is 
weak, the arts of production most im¬ 
perfect, capital scanty, and its increase, 
especially from domestic sources, slow. 
When an increased demand arose for 
food to be exported to other countries, 
it would only be very gradually that 
food could be produced to meet it. The 
capital needed could not be obtained 
by transfer from other employments, 
for such do not exist. The cottons or 
hardware which would be received from 






CONSEQUENCES OF THE FOREGOING LAWS. 


England in exchange for corn, the 
Russians and Poles do not now produce 
in the country: they go without them. 
Something might in time he expected 
from the increased exertions to which 
producers would be stimulated by the 
market opened for their produce ; but 
to such increase of exertion, the habits 
of countries whose agricultural popula¬ 
tion consists of serfs, or of peasants 
who have but just emerged from a ser¬ 
vile condition, are the reverse of favour¬ 
able, and even in this age of movement 
these habits do not rapidly change. If 
a greater outlay of capital is relied on 
as the source from which the produce 
is to be increased, the means must 
either be obtained by the slow process 
of saving, under the impulse given by 
new commodities and more extended 
intercourse (and in that case the popu¬ 
lation would most likely increase as 
fast), or must be brought in from foreign 
countries. If England is to obtain a 
rapidly increasing supply of corn from 
Russia or Poland, English capital must 
go there to produce it. This, how¬ 
ever, is attended with so many dif¬ 
ficulties, as are equivalent to great 
positive disadvantages. It is opposed 
by differences of language, differences 
of manners, and a thousand obstacles 
arising from the institutions and social 
relations of the country: and after all 
it would inevitably so stimulate popu¬ 
lation on the spot, that nearly all the 
increase of food produced by its means, 
woidd probably be consumed without 
leaving the country : so that if it were 
not the almost only mode of introducing 
foreign arts and ideas, and giving an 
effectual spur to the backward civiliza¬ 
tion of those countries, little reliance 
could be placed on it for increasing the 
exports, and supplying other countries 
with a progressive and indefinite in¬ 
crease of food. But to improve the 
civilization of a country is a slow pro¬ 
cess, and gives time for so great an in¬ 
crease of population both in the country 
itself, and in those supplied from it, 
that its effect in keeping down the 
price of food against the increase of 
demand, is not likely to be more de¬ 
cisive on the scale of all Europe, than on 
the smaller one of a particular nation. 


121 

The law, therefore, of diminishing 
return to industry, whenever population 
makes a more rapid progress than im¬ 
provement, is not solely applicable to 
countries which are fed from their own 
soil, but in substance applies quite as 
much to those which are willing to 
draw their food from any accessible 
quarter that can afford it cheapest. A 
sudden and great cheapening of food, 
indeed, in whatever manner produced, 
wrnuld, like any other sudden improve¬ 
ment in the arts of life, throw r the na¬ 
tural tendency of affairs a stage or tw-o 
further back, though without altering' 
its course. There is one contingency 
connected with freedom of importation, 
which may yet produce temporary ef¬ 
fects greater than Avere ever contem¬ 
plated either by the bitterest enemies 
or the most ardent adherents of free- 
trade in food. Maize, or Indian corn, 
is a product capable of being supplied 
in quantity sufficient to feed the whol& 
country, at a cost, allowing for differ¬ 
ence of nutritive quality, cheaper even 
than the potato. If maize should ever 
substitute itself for vdieat as the staple- 
food of the poor, the productive power 
of labour in obtaining food would be so 
enormously increased, and the expense 
of maintaining a family so diminished, 
that it would require perhaps some 
generations for population, even if it 
started forward at an American pace, 
to overtake this great accession to the 
facilities of its support. 

§ 4. Besides the importation ofcorn, 
there is another resource which can be 
invoked by a nation whose increasing 
numbers press hard, not against their 
capital, but against the productive 
capacity of their land : I mean Emigra¬ 
tion, especially in the form of Coloniza¬ 
tion. Of this remedy the efficacy as 
far as it goes is real, since it consists 
in seeking elsewhere those unoccupied 
tracts of fertile land, which if they ex¬ 
isted at home would enable the demand 
of an increasing population to be met 
•without any falling off' in the pro¬ 
ductiveness of labour. Accordingly, 
when the region to be colonized is near 
at hand, and the habits and tastes 
of the people sufficiently migratory, 





BOOK I. CHAPTER XIII. § 4. 


122 

this remedy is completely effectual. 
The migration from the older parts of 
the American Confederation to the new 
territories, which is to all intents and 
purposes colonization, is what enables 
population to go on unchecked through¬ 
out the Union without having yet 
diminished the return to industry, or 
increased the difficulty of earning a 
subsistence. If Australia or the in¬ 
terior of Canada were as near to Great 
Britain as Wisconsin and Iowa to New 
York ; if the superfluous people could 
remove to it without crossing the sea, 
and were of as adventurous and restless 
a character, and as little addicted to 
staying at home, as their kinsfolk of 
New England, those unpeopled conti¬ 
nents would render the same service to 
the United Kingdom which the old 
states of America derive from the new. 
But these things being as they are— 
though a judiciously conducted emigra¬ 
tion is a most important resource for 
suddenly lightening the pressure of 
population by a single effort—and 
though in such an extraordinary case 
as that of Ireland under the threefold 
operation of the potato failure, the I 


poor law, and the general turning out 
of tenantry throughout the country, 
spontaneous emigration may at a par¬ 
ticular crisis remove greater multitudes 
than it was ever proposed to remove at 
once by any national scheme; it still 
remains to be shown by experience 
whether a permanent stream of emigra¬ 
tion can be kept up, sufficient to take 
off, as in America, all that portion of 
the annual increase (when proceeding 
at its greatest rapidity) which being 
in excess of the progress made during 
the same short period in the arts oi 
life, tends to render living more difficult 
for every averagely-situated individual 
in the community. And unless this 
can be done, emigration cannot, even 
in an economical point of view, dispense 
with the necessity of checks to popula¬ 
tion. Further than this we have not 
to speak of it in this place. The gene¬ 
ral subject of colonization as a practi¬ 
cal question, its importance to old 
countries, and the principles on which 
it should be conducted, will be dis¬ 
cussed at some length in a subsequent 
portion of this Treatise. 




BOOK II. 


DISTRIBUTION. 


CHAPTER I. 


OP PRO 

§ 1. The principles which have 
hc-en set forth in the first part of this 
Treatise, are, in certain respects, 
strongly distinguished from those, on 
the consideration of which we are now 
about to enter. The laws and condi¬ 
tions of the production of wealth, par¬ 
take of the character of physical 
truths. There is nothing optional, or 
arbitrary in them. Whatever man¬ 
kind produce, must be produced in the 
modes, and under the conditions, im¬ 
posed by the constitution of external 
things, and by the inherent properties 
of their own bodily and mental struc¬ 
ture. Whether they like it or not, their 
productions will be limited by the 
amount of their previous accumulation, 
and, that being given, it will be pro¬ 
portional to their energy, their skill, 
the perfection of their machinery, and 
their judicious use of the advantages 
of combined labour. Whether they 
like it or not, a double quantity of 
labour will not raise, on the same land, 
a double quanti ty of food, unless some im¬ 
provement takes place in the processes 
of cultivation. Whether they like it 
or not, the unproductive expenditure of 
individuals will pro tanto tend to im¬ 
poverish the community, and only their 
productive expenditure will enrich it. 
The opinions, or the wishes, which 
may exist on these different matters, 
do not control the things themselves. 
We cannot, indeed, foresee to what ex¬ 
tent the modes of production may be 
altered, or the productiveness of labour 
increased, by future extensions of 
our knowledge of the laws of nature, 


p E R T Y 

suggesting new processes of industry 
of which we have at present no con¬ 
ception. But howsoever we may suc¬ 
ceed in making for ourselves more 
space within the limits set by the 
constitution of things, we know that 
there must be limits. We cannot alter 
the ultimate properties either of matter 
or mind, but can only employ those 
properties more or less successfully, to 
bring about the events in which we 
are interested. 

It is not so with the Distribution of 
Wealth. That is a matter of human 
institution solely. The things once 
there, mankind, individually or col¬ 
lectively, can do with them as they 
like. They can place them at the dis¬ 
posal of whomsoever they please, and 
on whatever terms. Further, in the 
social state, in every state except total 
solitude, any disposal whatever of them 
can only take place by the consent of 
society, or rather of those wdio dispose 
of its active force. Even what a person 
has produced by his individual toil, un¬ 
aided by any one, he cannot keep, un¬ 
less by the permission of society. Not 
only can society take it from him, but 
individuals could and would take it 
from him, if society only remained 
passive; if it did not either interfere 
en masse , or employ and pay people 
for the purpose of preventing him from 
being disturbed in the possession. The 
distribution of wealth, therefore, de¬ 
pends on the laws and customs of so¬ 
ciety. The rules by which it is de¬ 
termined, are what the opinions and 
feelings of the ruling portion of the 





124 BOOK II. CHAPTER I. § 2. 


community make them, and are very 
different in different ages and countries; 
and might be still more different, if 
mankind so chose. 

The opinions and feelings of man¬ 
kind, doubtless, are not a matter of 
chance. They are consequences of the 
fundamental laws of human nature, 
combined with the existing ’state of 
knowledge and experience, and the 
existing condition of social institutions 
and intellectual and moral culture. 
But the laws of the generation of 
human opinions are not within our 
present subject. They are part of the 
general theory of human progress, a 
far larger and more difficult subject 
of inquiry than political economy. We 
have here to consider, not the causes, 
but the consequences of the rules ac¬ 
cording to which wealth may be dis¬ 
tributed. Those, at least, are as little 
arbitrary, and have as much the 
character of physical laws, as the laws 
of production. Human beings can 
control their own acts, but not the 
consequences of their acts either to 
themselves or to others. Society can 
subject the distribution of wealth to 
whatever rules it thinks best; but what 
practical results will flow from the opera¬ 
tion of those rules, must be discovered, 
like any other physical or mental truths, 
by observation and reasoning. 

We proceed, then, to the considera¬ 
tion of the different modes of distri¬ 
buting the produce of land and labour, 
which have been adopted in practice, 
or may be conceived in theory. Among 
these, our attention is first claimed by 
that primary and fundamental institu¬ 
tion, on which, unless in some excep¬ 
tional and very limited cases, the 
economical arrangements of society 
have always rested, though in its se¬ 
condary features it has varied, and is 
liable to vary. I mean, of course, the 
institution of individual property. 

§ 2. Private property, as an institu¬ 
tion, did not owe its origin to any of 
those considerations of utility, which 
plead for the maintenance of it when 
established. Enough is known of rude 
ages, both from history and from analo¬ 
gous states of society in our own time, to 


show, that tribunals (which always pre¬ 
cede laws) were originally established, 
not to determine rights, but to repress, 
violence and terminate quarrels. With 
this object chiefly in view, they natur¬ 
ally enough gave legal effect to first 
occupancy, by treating as the aggressor 
the person who first commenced vio¬ 
lence, by turning, or attempting to turn, 
another out of possession. The pre¬ 
servation of the peace, which was the 
original object of civil government, was 
thus attained ; while by confirming, to 
those who already possessed it, even 
what was not the fruit of personal ex¬ 
ertion, a guarantee was incidentally 
given to them and others that they 
would be protected in what was so. 

In considering the institution of pro¬ 
perty as a question in social philosophy, 
we must leave out of consideration its 
actual origin in any of the existing na¬ 
tions of Europe. We may suppose a 
community unhampered by any pre¬ 
vious possession ; a body of colonists, 
occupying for the first time uninha¬ 
bited country ; bringing nothing with 
them but what belonged to them in 
common, and having a clear field for 
the adoption of the institutions and 
polity which' they judged most expe¬ 
dient ; required, therefore, to choose 
whether they would conduct the work 
of production on the principle of indi¬ 
vidual property, or on some system 
of common ownership and collective 
agency. 

If private property were adopted, we 
must presume that it would be accom¬ 
panied by none of the initial inequa¬ 
lities and injustices which obstruct the 
beneficial operation of the principle in 
old societies. Every full-grown man or 
woman, we must suppose, would be 
secured in the unfettered use and dis¬ 
posal of his or her bodily and mental 
faculties ; and the instruments of pro¬ 
duction, the land and tools, would be 
divided fairly among them, so that all 
might start, in respect to outward ap¬ 
pliances, on equal terms. It is possible 
also to conceive that in this original 
apportionment, compensation might be 
made for the injuries of nature, and the 
balance redressed by assigning to the 
less robust members of the community 




PROPERTY. 125 


advantages in the distribution, sufficient 
t-o put them on a par with the rest. But 
the division, once made, would not again 
be interfered with ; individuals would 
be left to their own exertions and to the 
ordinary chances, for making an ad¬ 
vantageous use of what was assigned 
to them. If individual property, on the 
contrary, were excluded, the plan which 
must be adopted would be to hold the 
land and all instruments of production 
as the joint property of the community, 
and to carry on the operations of in¬ 
dustry on the common account. The 
direction of the labour of the commu¬ 
nity would devolve upon a magistrate 
or magistrates, whom we may suppose 
elected by the suffrages of the commu¬ 
nity, and whom we must assume to be 
voluntarily obeyed by them. The di¬ 
vision of the produce would in like 
manner be a public act. The principle 
might either be that of complete equa¬ 
lity, or of apportionment to the neces¬ 
sities or deserts of individuals, in what¬ 
ever manner might be conformable to 
the ideas of justice or policy prevailing 
in the community. 

Examples of such associations, on a 
small scale, are the monastic orders, 
the Moravians, the followers of Rapp, 
and others : and from the hopes which 
they hold out of relief from the miseries 
and iniquities of a state of much in¬ 
equality of wealth, schemes for a larger 
application of the same idea have re¬ 
appeared and become popular at all 
periods of active speculation on the first 
principles of society. In an age like 
the present, when a general reconside¬ 
ration of all first principles is felt to be 
inevitable, and when more than at any 
former period of history the suffering 
portions of the community have a voice 
in the discussion, it was impossible but 
that ideas of this nature should spread 
far and wide. The late revolutions in 
Europe have thrown up a great amount 
of speculation of this character, and an 
unusual share of attention has conse¬ 
quently been drawn to the various forms 
which these ideas have assumed : nor 
is this attention likely to diminish, but 
on the contrary, to increase more and 
more. 

The assailants of the principle of in¬ 


dividual property may be divided into 
two classes: those whose scheme im¬ 
plies absolute equality in the distribu 
tion of the physical means of life and 
enjoyment, and those who admit in¬ 
equality, but grounded on some prin¬ 
ciple, or supposed principle, of justice 
or general expediency, and not, like so 
many of the existing social inequalities, 
dependent on accident alone. At the 
head of the first class, as the earliest 
of those belonging to the present gene¬ 
ration, must be placed Mr. Owen and 
his followers. M. Louis Blanc and M. 
Cabet have more recently become con¬ 
spicuous as apostles of similar doctrines 
(though the former advocates equality 
of distribution only as a transition to a 
still higher standard of justice, that all 
should work according to their capa¬ 
city, and receive according to their 
wants). The characteristic name for 
this economical system is Communism, 
a word of continental origin, only of late 
introduced into this country. The word 
Socialism, which originated among the 
English Communists, and was assumed 
by them as a name to designate their 
own doctrine, is now, on the Continent, 
employed in a larger sense ; not neces¬ 
sarily implying Communism, or the en¬ 
tire abolition of private property, but 
applied to any system which requires 
that the land and the instruments of 
production should be the property, not 
of individuals, but of communities or 
associations, or of the government. 
Among such systems, the two of highest 
intellectual pretension are those which, 
from the names of their real or reputed 
authors, have been called St. Simonism 
and Fourierism ; the former, defunct as 
a system, but which during the few 
years of its public promulgation, sowed 
the seeds of nearly all the Socialist 
tendencies which have since spread so 
widely in France: the second, still 
flourishing in the number, talent, and 
zeal of its adherents. 

§ 3. Whatever may be the merits or 
defects of these various schemes, they 
cannot be truly said to be impractica¬ 
ble. No reasonable person can doubt 
that a village community, composed of 
a few thousand inhabitants cultivating 





BOOK II. CHAPTER I. § 3. 


126 

in joint ownership the same extent of 
land which at present feeds that number 
of people, and producing by combined 
labour and the most improved processes 
the manufactured articles which they 
required, could raise an amount of pro¬ 
ductions sufficient to maintain them in 
comfort; and would find the means of 
obtaining, and if need be, exacting, the 
quantity of labour necessary for this 
purpose, from every member of the 
association who was capable of work. 

The objection ordinarily made to a 
system of community of property and 
equal distribution of the produce, that 
each person would be incessantly occu¬ 
pied in evading his fair share of the 
work, points, undoubtedly, to a real 
difficulty. But those who urge this 
objection, forget to how great an extent 
the same difficulty exists under the 
system on which nine-tenths of the 
business of society is now conducted. 
The objection supposes, that honest and 
efficient labour is only to be had from 
those who are themselves individually 
to reap the benefit of their own exer¬ 
tions. But how small a part of all the 
labour performed in England, from the 
lowest paid to the highest, is done by 
persons working for their own benefit. 
From the Irish reaper or hodman to 
the chief justice or the minister of 
state, nearly all the work of society is 
remunerated by day wages or fixed 
salaries. A factory operative has less 
personal interest in his work than a 
member of a Communist association, 
since he is not, like him, working for a 
partnership of which he is himself a 
member. It will no doubt be said, 
that though the labourers themselves 
have not, in most cases, a personal in¬ 
terest in their work, they are watched 
and superintended, and their labour 
directed, and the mental part of the 
labour performed, by persons who have. 
Even this, however, is far from being 
universally the fact. In all public, 
and many of the largest and most 
successful private undertakings, not 
only the labours of detail, but the 
control and superintendence are en¬ 
trusted to salaried officers. And 
though the “master’s eye,” when the 
master is vigilant and intelligent, is of 


proverbial value, it must be remem¬ 
bered that in a Socialist farm or manu¬ 
factory, each labourer would be under 
the eye not of ono master, but of the 
whole community. In the extreme 
case of obstinate perseverance in not 
performing the due share of work, the 
community would have the same re¬ 
sources which society now has for com¬ 
pelling conformity to the necessary- 
conditions of the association. Dis¬ 
missal, the only remedy at present, is 
no remedy when any other labourer 
who may be engaged does no better 
than his predecessor: the power of 
dismissal only enables an employer to 
obtain from his workmen the customary- 
amount of labour, but that customary 
labour may be of any degree of ineffi¬ 
ciency. Even the labourer who loses 
his employment by idleness or negli¬ 
gence, has nothing worse to suffer, iu 
the most unfavourable case, than the 
discipline of a workhouse, and if the 
desire to avoid this be a sufficient mo¬ 
tive in the one system, it would be 
sufficient in the other. I am not 
undervaluing the strength of the in¬ 
citement given to labour when the 
whole or a large share of the benefit of 
extra exertion belongs to the labourer. 
But under the present system of in¬ 
dustry this incitement, in the great 
majority of cases, does not exist. If 
Communistic labour might be less 
vigorous than that of a peasant pro¬ 
prietor, or a workman labouring on his 
own account, it would probably be 
more energetic than that of a labourer 
for hire, who has no personal interest 
in the matter at all. The neglect by 
the uneducated classes of labourers for 
hire, of the duties which they engage 
to perform, is in the present state of 
society most flagrant. Now it is an 
admitted condition of the Communist 
scheme that all shall be educated : and 
this being supposed, the duties of the 
members of the association would 
doubtless be as diligently performed as 
those of the generality of salaried offi¬ 
cers in the middle or higher classes; 
who are not supposed to be neces¬ 
sarily unfaithful to their trust, because 
so long as they are not dismissed, their 
pay is the same in however lax a 





COMMUNISM. 


manner their duty is fulfilled. Un- | 
doubtedly, as a general rule, remunera¬ 
tion by fixed salaries does not in any 
class of functionaries produce the 
maximum of zeal: and this is as much 
as can be reasonably alleged against 
Communistic labour. 

That even this inferiority would 
necessarily exist, is by no means so 
certain as is assumed by those who are 
little used to carry their minds beyond 
the state of things with which they are 
familiar. Mankind ai’e capable of a 
far greater amount of public spirit than 
the present age is accustomed to sup¬ 
pose possible. History bears witness 
to the success with which large bodies 
of human beings may be trained to 
feel the public interest their own. And 
no soil could be more favourable to the 
growth of such a feeling, than a Com¬ 
munist association, since all the am¬ 
bition, and the bodily and mental 
activity, which are now exerted in the 
pursuit of separate and self-regarding 
interests, would require another sphere 
of employment, and would naturally 
find it in the pursuit of the general 
benefit of the community. The same 
cause, so often assigned in explanation 
of the devotion of the Catholic priest 
or monk to the interest of his order— 
that he has no interest apart from it— 
would, under Communism, attach the 
citizen to the community. And inde¬ 
pendently of the public motive, every 
member of the association would be 
amenable to the most universal, and 
one of the strongest of personal mo¬ 
tives, that of public opinion. The 
force of this motive in deterring from 
any act or omission positively reproved 
by the community, no one is likely to 
deny; but the power also of emulation, 
in exciting to the most strenuous 
exertions for the sake of the approba¬ 
tion and admiration of others, is borne 
witness to by experience in every 
situation in which human beings pub¬ 
licly compete with one another, even 
if it be in things frivolous, or from 
which the public derive no benefit. A 
contest, who can do most for the com¬ 
mon good, is not the kind of competi¬ 
tion which Socialists repudiate. To 
what extent, therefore, the energy of 


127 

labour would be diminished by Com¬ 
munism, or whether in the long run it 
would be diminished at all, must be 
considered for the present an undecided 
question. 

Another of the objections to Com¬ 
munism is similar to that, so often 
urged against poor-laws : that if every 
member of the community were as¬ 
sured of subsistence for himself and 
any number of children, on the sole 
condition of willingness to work, pru¬ 
dential restraint on the multiplication 
of mankind would be at an end, and 
population would start forward at a 
rate which would reduce the com¬ 
munity through successive stages of 
increasing discomfort to actual starva¬ 
tion. There would certainly be much 
ground for this apprehension if Com¬ 
munism provided no motives to re¬ 
straint, equivalent to those which it 
would take away. But Communism is 
precisely the state of things in which 
opinion might be expected to declare 
itself with greatest intensity against 
this kind of selfish intemperance. Any 
augmentation of numbers which di¬ 
minished the comfort or increased the 
toil of the mass, would then cause 
(which now it does not) immediate and 
unmistakeable inconvenience to every 
individual in the association; incon¬ 
venience which could not then be im¬ 
puted to the avarice of employers, or 
the unjust privileges of the rich. In 
such altered cii’cumstances opinion 
could not fail to reprobate, and if repro¬ 
bation did not suffice, to repress by 
penalties of some description, this or 
any other culpable self-indulgence at 
the expense of the community. The 
Communistic scheme, instead of being 
peculiarly open to the objection drawn 
from danger of over-population, has 
the recommendation of tending in an 
especial degree to the prevention of 
that evil. 

A more real difficulty is that of fairly 
apportioning the labour of the commu¬ 
nity among its members. There are 
many kinds of work, and by what 
standard are they to be measured 
one against another? Who is to 
judge how much cotton spinning, or 
distributing goods from the stores, or 




BOOK n. CHAPTER I. § 3. 


128 

bricklaying, or chimney sweeping, is 
equivalent to so much ploughing ? 
The difficulty of making the adjust¬ 
ment between different qualities of 
labour is so strongly felt by Com¬ 
munist writers, that they have usually 
thought it necessary to provide that 
all should work bv turns at every de¬ 
scription of useful labour : an arrange¬ 
ment. which by putting an end to the 
division of employments, would sacri¬ 
fice so much of the advantage of eo- 
operative production as greatly to 
diminish the productiveness of labour. 
Besides, even in the same kind of 
work, nominal equality of labour would 
be so great a real inequality, that the 
feeling of justice would revolt against 
its being enforced. All persons are 
not equally fit for all labour; and 
the same quantity of labour is an un¬ 
equal burthen on the weak and the 
strong, the hardy and the delicate, the 
quick and the slow, the dull and the 
intelligent. 

But these difficulties, though real, 
are not necessarily insuperable. The 
apportionment of work to the strength 
and capacities of individuals, the miti¬ 
gation of a general rule to provide for 
■ cases in which it would operate harshly, 
are not problems to which human in¬ 
telligence, guided by a sense of justice, 
would be inadequate. And the worst 
and most unjust arrangement which 
could be made of these points, under a 
system aiming at equality, would be 
so far short of the inequality and in¬ 
justice with which labour (not to speak 
of remuneration) is now apportioned, 
as to be scarcely worth counting in the 
comparison. We must remember too 
that Communism, as a system of 
society, exists only in idea ; that its 
difficulties, at present, are much better 
understood than its resources; and 
that the intellect of mankind is only 
beginning to contrive the means of 
organizing it in detail, so as to over¬ 
come the one and derive the greatest 
advantage from the other. 

If, therefore, the choice were to be 
made between Communism with all its 
chances, and the present state of 
society with all its sufferings and in¬ 
justices; if the institution of private 


property necessarily carried with it as a 
consequence, that the produce of labour 
should be apportioned as we now see 
it, almost in an inverse ratio to the 
labour—the largest portions to those 
who have never worked at all, the next 
largest to those whose work is almost 
nominal, and so in a descending scale, 
the remuneration dwindling as the 
work grows harder and more disagree¬ 
able, until the most fatiguing and ex¬ 
hausting bodily labour cannot count 
with certainty on being able to earn 
even the necessaries of life ; if this, or 
Communism, were the alternative, all 
the difficulties, great or small, of Com¬ 
munism would be but as dust in the 
balance. But to make the comparison 
applicable, we must compare Com¬ 
munism at its best, with the regime of 
individual property, not as it is, but as 
it might be made. The principle of 
private property has never yet had a 
fair trial in any country; and less so, 
perhaps, in this country than in some 
others. The social arrangements of 
modem Europe commenced from a 
distribution of property which was the 
result, not of just partition, or acqui¬ 
sition by industry, but of conquest and 
violence: and notwithstanding what 
industry has been doing for many 
centuries to modify the work of force, 
the system still retains many and large 
traces of its origin. The laws of pro¬ 
perty have never yet conformed to the 
principles on which the justification of 
private property rests. They have 
made property of things which never 
ought to be property, and absolute 
property where only a qualified pro¬ 
perty ought to exist. They have not 
held the balance fairly between human 
beings, but have heaped impediments 
upon some, to give advantage to 
others; they have purposely fostered 
inequalities, and prevented all from 
starting fair in the race. That all 
should indeed start on perfectly equal 
terms, is inconsistent with any law of 
private property : but if as much pains 
as has been taken to aggravate the 
inequality of chances arising from the 
natural working of the principle, had 
been taken to temper that inequality 
by every means not subversive of the 






COMMUNISM. 


principle itself; if the tendency of 
legislation had been to favour the dif- 
fusion, instead of the concentration of 
wealth—to encourage the subdivision 
of the large masses, instead of striving 
to keep them together; the principle 
of individual property would have been 
found to have no necessary connexion 
with the physical and social evils 
which almost all Socialist writers 
assume to be inseparable from it. 

Private property, in every defence 
made of it, is supposed to mean, the 
guarantee to individuals, of the fruits 
of their own labour and abstinence. 
The guarantee to them of the fruits of 
the labour and abstinence of others, 
transmitted to them without any merit 
or exertion of their own, is not of the 
essence of the institution, but a mere 
incidental consequence, which when it 
reaches a certain height, does not pro¬ 
mote, but conflicts with the ends which 
render private property legitimate. To 
judge of the final destination of the in¬ 
stitution of property, we must suppose 
everything rectified, which causes the 
institution to work in a manner op¬ 
posed to that equitable principle, of 
proportion between remuneration and 
exertion, on which in every vindication 
of it that will bear the light, it is as¬ 
sumed to be grounded. We must also 
suppose two conditions realized, with¬ 
out which neither Communism nor any 
other laws or institutions could make 
the condition of the mass of mankind 
other than degraded and miserable. 
One of these conditions is, universal 
education ; the other, a due limitation 
of the numbers of the community. 
With these, there could be no poverty 
even under the present social institu¬ 
tions : and these being supposed, the 
question of Socialism is not, as gener¬ 
ally stated by Socialists, a question of 
flying to the sole refuge against the 
evils which now bear down humanity; 
but a mere question of comparative 
advantages, which futurity must deter¬ 
mine. We are too ignorant either of 
what individual agency in its best 
form, or Socialism in its best form, can 
accomplish, to be qualified to decide 
which ®f the two will be the ultimate 
form of human society. 
r.E. 


129 

If a conjecture may be hazarded, the 
decision will probably depend mainly 
on one consideration, viz. which of the 
two systems is consistent with the 
greatest amount of human liberty and 
spontaneity. After the means of sub¬ 
sistence are assured, the next in strength 
of the personal wants of human beings 
is liberty; and (unlike the physical 
wants, which as civilization advances 
become more moderate and more ame¬ 
nable to control) it increases instead of 
diminishing in intensity, as the intel¬ 
ligence and the moral faculties are more 
developed. The perfection both of social 
arrangements and of practical morality 
would be, to secure to all persons com¬ 
plete independence and freedom of ac¬ 
tion, subject to no restriction but that 
of not doing injury to others : and the 
education which taught or the .social 
institutions which required them to 
exchange the control of their own ac¬ 
tions for any amount of comfort or 
affluence, or to renounce liberty for the 
sake of equality, would deprive them 
of one of the most elevated characte¬ 
ristics of human nature. It remains to 
be discovered how far the preservation 
of this characteristic would be found 
compatible with the communistic or¬ 
ganization of society. No doubt, this, 
like all the other objections to the 
Socialist schemes, is vastly exagge¬ 
rated. The members of the association 
need not be required to live together 
more than they do now, nor need they 
be controlled in the disposal of their 
individual share of the produce, and of 
the probably large amount of leisure 
which, if they limited their production 
to things really worth producing, they 
would possess. Individuals need not 
be chained to an occupation, or to a 
particular locality. The restraints of 
Communism would be freedom in com¬ 
parison with the present condition of 
the majority of the human race. The 
generality of labourers in this and most 
other countries, have as little choice of 
occupation or freedom of locomotion, 
are practically as dependent on fixed 
rules and on the will of others, as they 
could be on any system short of actual 
slavery; to say nothing of the entire 
domestic subjection of one half tha 




BOOK II. CHAPTER I. § 4. 


130 

species, to which it is the signal 
honour of Owenism and most other 
forms of Socialism that they assign 
equal rights, in all respects, with those 
of the hitherto dominant sex. But it 
is not by comparison with the present 
had state of society that the claims of 
Communism can be estimated ; nor is 
it sufficient that it should promise 
greater personal and mental freedom 
than is now enjoyed by those who 
have not enough of either to deserve 
the name. The question is whether 
there would be any asylum left for 
individuality of character; whether 
public opinion would not he a tyran¬ 
nical yoke ; whether the absolute de¬ 
pendence of each on all, and surveil¬ 
lance of each by all, w r ould not grind 
all down into a tame uniformity of 
thoughts, feelings, and actions. This 
is already one of the glaring evils of 
the existing state of society, notwith¬ 
standing a much greater diversity of 
education and pursuits, and a much 
less absolute dependence of the 
individual on the mass, than would 
exist in the Communistic regime. No 
society in which eccentricity is a 
matter of reproach, can be in a whole¬ 
some state. It is yet to be ascertained 
whether the Communistic scheme 
would he consistent with that multi¬ 
form development of human nature, 
those manifold unlikenesses, that diver¬ 
sity of tastes and talents, and variety 
of intellectual points of view, which 
not only form a great part of the inte¬ 
rest of human life, but by bringing in¬ 
tellects into a stimulating collision, 
and by presenting to each innumerable 
notions that he wmuld not have con¬ 
ceived of himself, are the mainspring 
of mental and moral progression. 

§ 4. I have thus far confined my 
observations to the Communistic doc¬ 
trine, which forms the extreme limit 
of Socialism; according to which not 
only the instruments of production, the 
land and capital, are the joint pro¬ 
perty of the community, but the pro¬ 
duce is divided and the labour appor¬ 
tioned, as far as possible, equally. The 
objections, whether well or ill grounded, 
to which Socialism is liable, apply to 


this form of it in their greatest force. 
The other varieties of Socialism mainly 
differ from Communism, in not relying 
solely on wdmt M. Louis Blanc calls 
the point of honour of industry, but 
retaining more or less of the incentives 
to labour derived from private pecu¬ 
niary interest. Thus it is already a 
modification of the strict theory of 
Communism, when the principle is pro¬ 
fessed of proportioning remuneration 
to labour. The attempts which have 
been made in France to carry Social¬ 
ism into practical effect, by associa¬ 
tions of workmen manufacturing on 
their own account, mostly began by 
sharing the remuneration equally, 
without regard to the quantity of 
work done by the individual: but in 
almost every case this plan was after 
a short time abandoned, and recourse 
w T as had to working by the piece. The 
original principle appeals to a higher 
standard of justice, and is adapted to a 
much higher moral condition of human 
nature. The proportioning of remu¬ 
neration to -work done, is really just, 
only in so far as the more or less of the 
work is a matter of choice: when it 
depends on natural difference of strength 
or capacity, this principle of remune¬ 
ration is in itself an injustice : it is 
giving to those who have; assigning 
most to those who are already most 
favoured by nature. Considered, how¬ 
ever, as a compromise with the selfish 
type of character formed by the present 
standard of morality, and fostered by 
the existing social institutions, it is 
highly expedient; and until education 
shall have been entirely regenerated, 
is far more likely to prove immediately 
successful, than an attempt at a higher 
ideal. 

The two elaborate forms of non- 
communistic Socialism known as St. 
Simonism and Fourierism, are totally 
free from the objections usually urged 
against Communism; and though 
they are open to others of their own, 
yet by the great intellectual power 
which in many respects distinguishes 
them, and by their large and philoso¬ 
phic treatment of some of the funda¬ 
mental problems of society and mora¬ 
lity, they may justly be counted among 



FOURIERISM 131 


the most remarkable productions of the 
past and present age. 

The St. Simonian scheme does not 
contemplate an equal, but an unequal 
division of the produce; it does not 
propose that all should be occupied 
alike, but differently, according to their 
vocation or capacity; the function of 
each being assigned, like grades in a 
regiment, by the choice of the direct¬ 
ing authority, and the remuneration 
being by salary, proportioned to the 
importance, in the eyes of that autho¬ 
rity, of the function itself, and the 
merits of the person who fulfils it. For 
the constitution of the ruling body, 
different plans might be adopted, con¬ 
sistently with the essentials of the 
system. It might be appointed by 
popular suffrage. In the idea of the 
original authors, the rulers were sup¬ 
posed to be persons of genius and vir¬ 
tue, who obtained the voluntary adhe¬ 
sion of the rest by the force of mental 
superiority. That the scheme might 
in some peculiar states of society work 
with advantage, is not improbable. 
There is indeed a successful experi¬ 
ment, of a somewhat similar kind, on 
record, to which I have once alluded ; 
that of the Jesuits in Paraguay. A 
race of savages, belonging to a por¬ 
tion of mankind more averse to conse¬ 
cutive exertion for a distant object 
than any other authentically known to 
us, was brought under the mental do¬ 
minion of civilized and instructed men 
who were united among themselves by 
a system of community of goods. To 
the absolute authority of these men 
they reverentially submitted them¬ 
selves, and were induced by them to 
learn the arts of civilized life, and to 
practice labours for the community, 
which no inducement that could have 
been offered would have prevailed on 
them to practise for themselves. This 
social system was of short duration, 
being prematurely destroyed by diplo¬ 
matic arrangements and foreign force. 
That it could be brought into action 
at all was probably owing to the im¬ 
mense distance in point of knowledge 
and intellect which separated the few 
rulers from the whole body of the 
ruled, without any intermediate orders, 


either social or intellectual. In any 
other circumstances it would probably 
have been a complete failure. It sup¬ 
poses an absolute despotism in the 
heads of the association; which would 
probably not be much improved if the 
depositaries of the despotism (contrary 
to the views of the authors of the sys¬ 
tem) were varied from time to time 
according to the result of a popular 
canvass. But to suppose that one or 
a few human beings, howsoever se¬ 
lected, could, by whatever machinery 
of subordinate agency, be qualified to 
adapt each person’s work to his capa¬ 
city, and proportion each person’s re¬ 
muneration to his merits—to be, in 
fact, the dispensers of distributive jus¬ 
tice to every member of a community ; 
or that any use which they could 
make of this power would give general 
satisfaction, or would be submitted to 
without the aid of force—is a supposi¬ 
tion almost too chimerical to be rea¬ 
soned against. A fixed rule, like that 
of equality, might be acquiesced in, 
and so might chance, or an external 
necessity ; but that a handful of human 
beings should weigh everybody in tho 
balance, and give more to one and less 
to another at their sole pleasure and 
judgment, would not be borne, unless 
from persons believed to be more than 
men, and backed by supernatural 
terrors. 

The most skilfully combined, and 
with the greatest foresight of objec¬ 
tions, of all the forms of Socialism, is 
that commonly known as Fourierism. 
This system does not contemplate the 
abolition of private property, nor even 
of inheritance: on the contrary, it 
avowedly takes into consideration, as 
an element in the distribution of tho 
produce, capital as well as labour. It 
proposes that the operations of indus¬ 
try should be carried on by associations 
of about two thousand members, com¬ 
bining their labour on a district of 
about a square league in extent, under 
the guidance of chiefs selected by 
themselves. In the distribution, a 
certain minimum is first assigned for 
the subsistence of every member of the 
community, whether capable or not of 
labour. The remainder of the produce 

K 2 



BOOK II. CHAPTER I. § 4. 


132 

is shared in certain proportions, to ho 
determined beforehand, among the 
three elements, Labour, Capital, and 
Talent. The capital of the commu¬ 
nity may be owned in unequal shares 
by different members, who would in 
that case receive, as in any other joint- 
stock company, proportional dividends. 
The claim of each person on the share 
of the produce apportioned to talent 
is estimated by the grade or rank 
which the individual occupies in the 
several groups of labourers to which he 
or she belongs ; these grades being in 
all cases conferred by the choice of his 
or her companions. The remunera¬ 
tion, when received, would not of 
necessity be expended or enjoyed in 
common; there would be separate 
menages for all who preferred them, 
and no other community of living is 
contemplated, than that all the mem¬ 
bers of the association should reside in 
the same pile of buildings; for saving 
of labour and expense, not only in 
building, but in every branch of do¬ 
mestic economy; and in order that, 
the whole of the buying and selling 
operations of the community being 
performed by a single agent, the enor¬ 
mous portion of the produce of industry 
now carried off 1 by the profits of mere 
distributors might be reduced to the 
smallest amount possible. 

This system, unlike Communism, 
does not, in theory at least, withdraw 
any of the motives to exertion which 
exist in the present state of society. 
On the contrary, if the arrangement 
worked according to the intentions of 
its contrivers, it would even strengthen 
those motives; since each person 
would have much more certainty of 
reaping individually the fruits of 
increased skill or energy, bodily or 
mental, than under the present social 
arrangements can be felt by any but 
those who are in the most advan¬ 
tageous positions, or to whom the 
chapter of accidents is more than ordi¬ 
narily favourable. The Fourierists, 
however, have still another resource. 
They believe that they have solved 
the great and fundamental problem of 
rendering labour attractive. That this 
is not impracticable, they contend by 


very strong arguments; in particular 
by one which they have in common 
with the Owenites, viz., that scarcely 
any labour, however severe, undergone 
by human beings for the sake of sub¬ 
sistence, exceeds in intensity that 
which other human beings, whoso sub¬ 
sistence is already provided for, are 
found ready and even eager to undergo 
for pleasure. This certainly is a most 
significant fact, and one from which 
the student in social philosophy may 
draw important instruction. But the 
argument founded on it may easily be 
stretched too far. If occupations full 
of discomfort and fatigue are freely 
pursued by many persons as amuse¬ 
ments, who does not see that they are 
amusements exactly because they are 
pursued freely, and may be discon¬ 
tinued at pleasure ? The liberty of 
quitting a position often makes the 
whole difference between its being 
painful and pleasurable. Many a per¬ 
son remains in the same town, street, 
or house from January to December, 
without a wish or a thought tending 
towards removal, who, if confined to 
that same place by the mandate of 
authority, would find the imprisonment 
absolutely intolerable. 

According to the Fourierists, scarcely 
any kind of useful labour is naturally 
and necessarily disagreeable, unless it 
is either regarded as dishonourable, or 
is immoderate in degree, or destitute 
of the stimulus of sympathy and emu¬ 
lation. Excessive toil needs not, they 
contend, be undergone by any one, in 
a society in which there would be no 
idle class, and no labour wasted, as so 
enormous an amount of labour is now 
wasted, in useless things; and where 
full advantage would be taken of the 
power of association, both in increasing 
the efficiency of production, and in 
economizing consumption. The other 
requisites for rendering labour at¬ 
tractive would, they think, be found 
in the execution of all labour by social 
groups, to any number of which the 
same individual might simultaneously 
belong, at his or her own choice ; their 
grade in each being determined by the 
degree of service which they were 
found capable of rendering, as appre- 




PROPERTY. 133 


dated by the suffrages of their com¬ 
rades. It is inferred from the diver¬ 
sity of tastes and talents, that every 
member of the community would be 
attached to several groups, employing 
themselves in various kinds of occupa¬ 
tion, some bodily, others mental, and 
would be capable of occupying a high 
place in some one or more ; so that a 
real equality, or something more nearly 
approaching to it than might at first 
be supposed, would practically result: 
not from the compression, but, on the 
contrary, from the largest possible de¬ 
velopment, of the various natural supe¬ 
riorities residing in each individual. 

Even from so brief an outline, it 
must be evident that this system does 
no violence to any of the general laws 
by which human action, even in the 
present imperfect state of moral and 
intellectual cultivation, is influenced; 
and that it would be extremely rash to 
pronounce it incapable of success, or 
unfitted to realize a great part of the 
hopes founded on it by its partisans. 
"With regard to this, as to all other 
varieties of Socialism, the thing to be 


desired, and to which they have a just 
claim, is opportunity of trial. They 
are all capable of being tried on a 
moderate scale, and at no risk, either 
personal or pecuniary, to any except 
those who try them. It is for expe¬ 
rience to determine how far or how 
soon any one or more of the possible 
systems of community of property will 
be fitted to substitute itself for the 
“ organization of industry” based on 
private ownership of land and capital. 
In the meantime we may, without at¬ 
tempting to limit the ultimate capabi¬ 
lities of human nature, affirm, that the 
political economist, for a considerable 
time to come, will be chiefly concerned 
with the conditions of existence and 
progress belonging to a society founded 
on private property and individual 
competition ; and that the object to be 
principally aimed at in the present 
stage of human improvement, is not 
the subversion of the system of indi¬ 
vidual property, but the improvement 
of it, and the full participation of 
every member of the community in its 
benefits. 


CHAPTER II. 

THE SAME SUBJECT CONTINUED. 


§ 1. It is next to be considered, 
what is included in the idea of private 
property, and by what considerations 
the application of the principle should 
be bounded. 

The institution of property, when 
limited to its essential elements, con¬ 
sists in the recognition, in each person, 
of a right to the exclusive disposal of 
what he or she have produced by their 
own exertions, or received either by 
gift or by fair agreement, without force 
or fraud, from those who produced it. 
The foundation of the wdiole is, the 
right of producers to what they them¬ 
selves have produced. It may be ob¬ 
jected, therefore, to the institution as 
it now exists, that it recognises rights 
of property in individuals over things 


which they have not produced. For 
example (it may be said) the opera¬ 
tives in a manufactory create, by their 
labour and skill, the whole produce; 
yet, instead of its belonging to them, 
the law gives them only their stipu¬ 
lated hire, and transfers the produce 
to some one who has merely supplied 
the funds, without perhaps contribu¬ 
ting anything to the work itself, even 
in the form of superintendence. The 
answer to this is, that the labour of 
manufacture is only one of the condi¬ 
tions which must combine for the pro¬ 
duction of the commodity. The 
labour cannot be carried on without 
materials and machinery, nor without 
a stock of necessaries provided in 
advance, to maintain the labourers 







134 BOOK IT. CHAPTER II. § 2. 


during the production. All these 
things are the fruits of previous labour. 
If the labourers were possessed of 
them, they would not need to divide 
the produce with any one ; but while 
they have them not, an equivalent 
must be given to those who have, both 
for the antecedent labour, and for the 
abstinence by which the produce of 
that labour, instead of being expended 
on indulgences, has been reserved for 
this use. The capital may not have 
been, and in most cases was not, crea¬ 
ted by the labour and abstinence of 
the present possessor; but it was 
created by the labour and abstinence 
of some former person, who may in¬ 
deed have been wrongfully dispossessed 
of it, but who, in the present age of 
the world, much more probably trans¬ 
ferred his claims to the present capi¬ 
talist by gift or voluntary contract : 
and the abstinence at least must have 
been continued by each successive 
owner, down to the present. If it be 
said, as it may with truth, that those 
who have inherited the savings of 
others have an advantage which they 
may have in no way deserved, over 
the industrious whose predecessors 
have not left them anything; I not 
only admit, but strenuously contend, 
(hat this unearned advantage should 
oe curtailed, as much as is consistent 
-with justice to those who thought tit 
ro dispose of their savings by giving 
them to their descendants. But while 
it is true that the labourers are at a 
disadvantage compared with those 
whose predecessors have saved, it is 
also true that the labourers are far 
better off than if those predecessors 
had not saved. They share in the ad¬ 
vantage, though not to an equal extent 
with the inheritors. The terms of co¬ 
operation between present labour and 
the fruits of past labour and saving, 
are a subject for adjustment between 
the two parties. Each is necessary to 
the other. The capitalists can do 
nothing without labourers, nor the 
labourers without capital. If the 
labourers compete for employment, the 
capitalists on their part compete for 
labour, to the full extent of the circu¬ 
lating capital of the country. Com¬ 


petition is often spoken of as if it were 
necessarily a cause of misery and 
degradation to the labouring class; as 
if high wages were not precisely as 
much a product of competition as low 
wages. The remuneration of labour 
is as much the result of the law of 
competition in the United States, as it 
is in Ireland, and much more com¬ 
pletely so than in England. 

The right of property includes, then, 
the freedom of acquiring by contract. 
The right of each to what he has pro¬ 
duced, implies a right to what has been 
produced by others, if obtained by 
their free consent; since the pro¬ 
ducers must either have given it from 
good will, or exchanged it for what 
they esteemed an equivalent, and to 
prevent them from doing so "would 
be to infringe their right of pro¬ 
perty in the product of their own in¬ 
dustry. 

§ 2. Before proceeding to consider 
the things which the principle of indi¬ 
vidual property does not include, we 
must specify one more thing which it 
does include: and this is, that a title, 
after a certain period, should be given 
by prescription. According to the fun¬ 
damental idea of property, indeed, 
nothing ought to be treated as such, 
which has been acquired by force or 
fraud, or appropriated in ignorance of 
a prior title vested in some other per¬ 
son ; but it is necessary to the security 
of rightful possessors, that they should 
not be molested by charges of wrong¬ 
ful acquisition, when by the lapse of 
time witnesses must have perished or 
been lost sight of, and the real cha¬ 
racter of the transaction can no longer 
be cleared up. Possession which has 
not been legally questioned within a 
moderate number of years, ought to 
be, as by the laws of all nations it is, 
a complete title. Even when the acqui¬ 
sition was wrongful, the dispossession, 
after a generation has elapsed, of the 
probably bond fide possessors, by the 
revival of a claim which had been long 
dormant, would generally be a greater 
injustice, and almost always a greater 
private and public mischief, than 
leaving the original wrong without 



INHERITANCE. 


atonement. It may seem hard, that 
a claim, originally just, should he de¬ 
feated by mere lapse of time; hut 
there is a time after which, (even look¬ 
ing at the individual case, and without 
regard to the general effect on the 
security of possessors,) the balance of 
hardship turns the other way. With 
the injustices of men, as with the con¬ 
vulsions and disasters of nature, the 
longer they remain unrepaired, the 
greater become the obstacles to re¬ 
pairing them, arising from the after¬ 
growths which would have to be torn 
up or broken through. In no human 
transactions, not even in the simplest 
and clearest, does it follow that a thing 
is tit to be done now, because it v T as 
fit to be done sixty years ago. It is 
scarcely needful to remark, that these 
reasons for not disturbing acts of in¬ 
justice of old date, cannot apply to 
unjust systems or institutions; since 
a bad law or usage is not one bad act, 
in the remote past, but a perpetual re¬ 
petition of bad acts, as long as the law 
or usage lasts. 

Such, then, being the essentials of 
private property, it is now to be con¬ 
sidered, to what extent the forms in 
which the institution has existed in 
different states of society, or still ex¬ 
ists, are necessary consequences of its 
principle, or are recommended by the 
reasons on which it is grounded. 

§ 3. Nothing is implied in pro¬ 
perty but the right of each to his (or 
her) own faculties, to what he can 
produce by them, and to whatever he 
can get for them in a fair market: to¬ 
gether with his right to give this to 
any other person if he chooses, and 
the right of that other to receive and 
enjoy it. 

It follows, therefore, that although 
the right of bequest, or gift after death, 
forms part of the idea of private pro¬ 
perty, the right of inheritance, as 
distinguished from bequest, does not. 
That the property of persons wdio have 
made no disposition of it during their 
lifetime, should pass first to their chil¬ 
dren, and failing them, to the nearest 
relations, may "be a proper arrange¬ 
ment or not, but is no consequence of 


135 

the principle of private property. 
Although there belong to the decision 
of such questions many considerations 
besides those of political economy, 
it is not foreign to the plan of this 
work to suggest, for the judgment of 
thinkers, the view of them which most 
recommends itself to the writer’s 
mind. 

No presumption in favour of existing 
ideas on this subject is to be derived 
from their antiquity. In early ages, 
the property of a deceased person 
passed to his children and nearest rela¬ 
tives by so natural and obvious an 
arrangement, that no other was likely 
to be even thought of in competition 
with it. In the first place, they were 
usually present on the spot: they were 
in possession, and if they had no other 
title, had that, so important in an early 
state of society, of first occupancy. 
Secondly, they were already, in a man¬ 
ner, joint owners of his property during 
his life. If the property was in land, 
it had generally been conferred by the 
State on a family rather than on an 
individual: if it consisted of cattle or 
moveable goods, it had probably been 
acquired, and v r as certainly protected 
and defended, by the united efforts of 
all members of the family who were of 
an age to work or fight. Exclusive 
individual property, in the modern 
sense, scarcely entered into the ideas 
of the time ; and when the first magis¬ 
trate of the association died, he really 
left nothing vacant but his own share 
in the division, which devolved on the 
member of the family who succeeded to 
his authority. To have disposed of the 
property otherwise, would have been 
to break up a little commonwealth, 
united by ideas, interest, and habits, 
and to cast them adrift on the world. 
These considerations, though rather 
felt than reasoned about, had so great 
an influence on the minds of mankind, 
as to create the idea of an inherent 
right in the children to the possessions 
of their ancestor ; a right which it was 
not competent to himself to defeat. 
Bequest, in a primitive state of so¬ 
ciety, was seldom recognised; a clear 
proof, were there no other, that pro¬ 
perty was conceived in a manner to- 



136 BOOK II CH. 

tally different from the conception of it 
in the present time.* 

But the feudal family, the last histo¬ 
rical form of patriarchal life, has long 
perished, and the unit of society is not 
now the family or clan, composed of all 
the reputed descendants of a common 
ancestor, hut the individual; or at 
most a pair of individuals, with their 
unemancipated children. Property is 
now inherent in individuals, not in 
families: the children when grown up 
do not follow the occupations or for¬ 
tunes of the parent: if they partici¬ 
pate in the parent’s pecuniary means 
it is at his or her pleasure, and not by 
a voice in the ownership and govern¬ 
ment of the whole, but generally by 
the exclusive enjoyment of a part: 
and in this country at least (except as 
far as entails or settlements are an ob¬ 
stacle) it is in the power of parents to 
disinherit even their children, and 
leave their fortune to strangers. More 
distant relatives are in general almost 
as completely detached from the family 
and its interests as if they were in no 
way connected with it. The only 
claim they are supposed to have on 
their richer relations, is to a preference, 
cceteris paribus, in good offices, and 
some aid in case of actual necessity. 

So great a change in the constitu¬ 
tion of society must make a consider¬ 
able difference in the grounds on which 
the disposal of property by inheritance 
should rest. The reasons usually 
assigned by modern writers for giving 
the property of a person who dies in¬ 
testate, to the children, or nearest 
relatives, are first, the supposition that 
in so disposing of it, the law is more 
likely than in any other mode to do 
what the proprietor would have done, 
if he had done anything; and secondly, 
the hardship, to those who lived with 
their parents and partook in their 
opulence, of being cast down from 
the enjoyments of wealth into poverty 
and privation. 

There is some force in both these 
arguments. The law ought, no doubt, 

* See, for admirable illustrations of this 
and many kindred points, Mr. Maine’s pro¬ 
found work on Ancient Law and its relation 
to Modern Ideas. 


\PTER II. § 3. 

to do for the children or dependents of 
an intestate, whatever it was the duty 
of the parent or protector to have done, 
so far as this can be known by any 
one besides himself. Since, however, 
the law cannot decide on individual 
claims, but must proceed by general 
rules, it is next to be considered what 
these rules should be. 

We may first remark, that in regard 
to collateral relatives, it is not, unless 
on grounds personal to the particular 
individual, the duty of anyone to make 
a pecuniary provision for them. Xo 
one now expects it, unless there happens 
to be no direct heirs ; nor would it be 
expected even then, if the expectation 
were not created by the provisions of 
the law in case of intestacy. I see, 
therefore, no reason why collateral 
inheritance should exist at all. Mr. 
Bentham long ago proposed, and other 
high authorities have agreed in the 
opinion, that if there are no heirs 
either in the descending or in the 
ascending line, the property, in case 
of intestacy, should escheat to the 
State. With respect to the more 
remote degrees of collateral relation¬ 
ship, the point is not very likely to be 
disputed. Few will maintain that 
there is any good reason why the 
accumulations of some childless miser 
should on his death (as every now and 
then happens) go to enrich a distant 
relative who never saw r him, who per¬ 
haps never knew himself to be related 
to him until there was something to be 
gained by it, and who had no moral 
claim upon him of any kind, more than 
the most entire stranger. But the 
reason of the case applies alike to all 
collaterals, even in the nearest degree. 
Collaterals have no real claims, but 
such as may be equally strong in the 
case of non-relatives; and in the one 
case as in the other, where valid claims 
exist, the proper mode of paying regard 
to them is by bequest. 

The claims of children are of a 
different nature: they are real, and in¬ 
defeasible. But even of these, I venture 
to think that the measure usually taken 
is an erroneous one: what is due to 
children is in some respects under¬ 
rated, in others, as it appears to me, 




INHERITANCE. 


exaggerated. One of the most binding 
of all obligations, that of not bringing 
children into the world unless they can 
be maintained in comfort during child- 
hood, and brought up with a likelihood 
of supporting themselves when of full 
age, is both disregarded in practice 
and made light of in theory in a manner 
disgraceful to human intelligence. On 
the other hand, when the parent pos¬ 
sesses property, the claims of the 
children upon it seem to me to be the 
subject of an opposite error. What¬ 
ever fortune a parent may have in¬ 
herited, or still more, may have ac¬ 
quired, I cannot admit that he owes 
to his children, merely because they 
are his children, to leave them rich, 
without the necessity of any exertion. 
I could not admit it, even if to be so 
left were always, and certainly, for the 
good of the children themselves. Bnt 
this is in the highest degree uncertain. 

O O 

It depends on individual character. 
Without supposing extreme cases, it 
may be affirmed that in a majority of 
instances the good not only of society 
but of the individuals would be better 
consulted by bequeathing to them a 
moderate, than a large provision. This, 
which is a common-place of moralists 
ancient and modern, is felt to be true 
by many intelligent parents, and would 
be acted upon much more frequently, 
if they did not allow themselves to 
consider less what really is, than what 
will be thought by others to be, ad¬ 
vantageous to the children. 

The duties of parents to their 
children are those which are indis¬ 
solubly attached to the fact of causing 
the existence of a human being. The 
parent owes to society to endeavour to 
make the child a good and valuable 
member of it, and owes to the children 
to provide, so far as depends on him, 
such education, and such appliances 
and means, as will enable them to start 
with a fair chance of achieving by 
their own exertions a successful life. 
To this every child has a claim; and 
I cannot admit, that as a child he 
has a claim to more. There is a case 
in which these obligations present 
themselves in their true light, without 
any extrinsic circumstances to disguise 


137 

or confuse them : it is that of an illegi¬ 
timate child. To such a child it is 
generally felt that there is due from 
the parent, the amount of provision 
for his welfare which will enable him 
to make his life on the whole a desir¬ 
able one. I hold that to no child, 
merely as such, anything more is due, 
than what is admitted to be due to an 
illegitimate child : and that no child 
for whom thus much has been done, 
has, unless on the score of previously 
raised expectations, any grievance, if 
the remainder of the parent’s fortune 
is devoted to public uses, or to the 
benefit of individuals on whom in the 
parent’s opinion it is better bestowed. 

In order to give the children that 
fair chance of a desirable existence, 
to which they are entitled, it is gene¬ 
rally necessary that they should not 
be brought up from childhood in habits 
of luxury which they will not have the 
means of indulging in after life. This, 
again, is a duty often flagrantly vio¬ 
lated by possessors of terminable in¬ 
comes, who have little property to 
leave. When the children of rich 
parents have lived, as it is natural 
they should do, in habits correspond¬ 
ing to the scale of expenditure in 
which the parents indulge, it is gene- 
l-ally the duty of the parents to make 
a greater provision for them, than 
would suffice for children otherwise 
brought up. I say generally, because 
even here there is another side to the 
question. It is a proposition quite 
capable of being maintained, that to a 
strong nature which has to make its 
way against narrow circumstances, to 
have known early some of the feelings 
and experiences of wealth, t is an ad¬ 
vantage both in the formation of cha¬ 
racter and in the happiness of life. 
But allowing that children have a just 
ground of complaint, who have been 
brought up to require luxuries which 
they are not afterwards likely to obtain, 
and that their claim, therefore, is good 
to a provision bearing some relation to 
the mode of their bringing up ; this, too, 
is a claim which is particularly liable 
to be stretched further than its reasons 
warrant. The case is exactly that of 
the younger children of the nobility 



BOOK II. CHAPTER II. § 4. 


138 

and landed gentry, the hulk of whose 
fortune passes to the eldest son. The 
other sons, who are usually numerous, 
are brought up in the same habits of 
luxury as the future heir, and they 
receive, as a younger brother’s portion, 
generally what the reason of the case 
dictates, namely, enough to support, 
in the habits of life to which they are 
accustomed, themselves, but not a wife 
or children. It really is no grievance 
to any man, that for the means of 
marrying and of supporting a family, 
he has to depend on his own exertions. 

A provision, then, such as is ad¬ 
mitted to he reasonable in the case 
of illegitimate children, of younger 
children, wherever in short the justice 
of the case, and the real interests of 
the individuals and of society, are the 
only things considered, is, I conceive, 
all that parents owe to their children, 
and all, therefore, which the state 
owes to the children of those who 
die intestate. The surplus, if any, 
1 hold that it may rightfully appro¬ 
priate to the general purposes of the 
community. I would not, however, be 
supposed to recommend that parents 
should never do more for their children 
than what, merely as children, they 
have a moral right to. In some cases 
it is imperative, in many laudable, and 
in all allowable, to do much more. 
For this, however, the means are 
afforded by the liberty of bequest. It 
is due, not to the children but to the 
parents, that they should have the 
power of showing marks of affection, 
of requiting services and sacrifices, 
and of bestowing their wealth according 
to their own preferences, or their own 
judgment of fitness. 

§ 4. Whether the power of bequest 
should itself be subject to limitation, is 
an ulterior question of great import¬ 
ance. Unlike inheritance ah intestato, 
bequest is one of the attributes of pro¬ 
perty : the ownership of a thing can¬ 
not be looked upon as complete with¬ 
out the power of bestowing it, at death 
or during life, at the owner’s pleasure: 
and all the reasons, which recommend 
that private property should exist, 
recommend pro tanto this extension of 


it. But property is only a means to 
an end, not itself the end. Like all 
other proprietary rights, and even in a 
greater degree than most, the power 
of bequest may be so exercised as to 
conflict with the permanent interests 
of the human race. It does so, when, 
not content with bequeathing an es¬ 
tate to A, the testator prescribes that 
on A’s death it shall pass to his 
eldest son, and to that son’s son, and 
so on for ever. No doubt, persons 
have occasionally exerted themselves 
more strenuously to acquire a fortune 
from thediope of founding a family in 
perpetuity; but the mischiefs to society 
of such perpetuities outweigh the 
value of this incentive to exertion, and 
the incentives in the case of those 
who have the opportunity of making 
large fortunes are strong enough with¬ 
out it. A similar abuse of the power 
of bequest is committed when a person 
who does the meritorious act of leaving 
property for public uses, attempts to 
prescribe the details of its application 
in perpetuity; when in founding a 
place of education, (for instance) he 
dictates, for ever, what doctrines shall 
be taught. It being impossible that 
any one should know what doctrines 
will be fit to be taught after he has 
been dead for centuries, the law ought 
not to give effect to such dispositions 
of property, unless subject to the per¬ 
petual revision (after a certain interval 
has elapsed) of a fitting authority. 

These are obvious limitations. But 
even the simplest exercise of the right 
of bequest, that of determining the 
person to whom property shall pass 
immediately on the death of the tes¬ 
tator, has always been reckoned among 
the privileges which might be limited 
or varied, according to views of ex¬ 
pediency. The limitations, hitherto, 
have been almost solely in favour of 
children. In England the right is 
in principle unlimited, almost the only 
impediment being that arising from a 
settlement by a former proprietor, in 
which case the holder for the time 
being cannot indeed bequeath his pos¬ 
sessions, but only because there is 
nothing to bequeath, he having merely 
a life interest. By the Roman law, 



BEQUESTS. 


on which the civil legislation of the 
Continent of Europe is principally 
founded, bequest originally was not 
permitted at all, and even after it was 
introduced, a legitima portio was com¬ 
pulsorily reserved for each child ; and 
such is still the law in some of the 
Continental nations. By the French 
law since the Revolution, the parent 
can only dispose by will, of a portion 
equal to the share of one child, each of 
the children taking an equal portion. 
This entail, as it may be called, of the 
bulk of every one’s property upon the 
children collectively, seems to me as 
little defensible in principle as an en¬ 
tail in favour of one child, though it 
does not shock so directly the idea of 
justice. I cannot admit that parents 
should be compelled to leave to their 
children even that provision which, as 
children, I have contended that they 
have a moral claim to. Children may 
forfeit that claim by general un¬ 
worthiness, or particular ill-conduct to 
the parents: they may have other 
resources or prospects: what has been 
previously done for them, in the way 
of education and advancement in life, 
may fully satisfy their moral claim ; or 
others may have claims superior to 
theirs. 

The extreme restriction of the power 
of bequest in French law was adopted 
as a democratic expedient, to break 
down the custom of primogeniture, and 
counteract the tendency of inherited 
property to collect in large masses. I 
agree in thinking these objects emi¬ 
nently desirable; but the means used 
are not, I think, the most judicious. 
Were I framing a code of laws accord¬ 
ing to what seems to me best in itself, 
without regard to existing opinions and 
sentiments, I should prefer to restrict, 
not what any one might bequeath, but 
what any one should be permitted to 
acquire, by bequest or inheritance. 
Each person should have power to dis¬ 
pose by will of his or her whole pro¬ 
perty ; but not to lavish it in enriching 
some one individual, beyond a certain 
maximum, which should be fixed suffi¬ 
ciently high to afford the means of 
comfortable independence. The in¬ 
equalities of property which arise from 


13D 

unequal industry, frugality, perse¬ 
verance, talents, and to a certain extent 
even opportunities, are inseparable from 
the principle of private property, and 
if we accept the principle, we must bear 
with these consequences of it: but I 
see nothing objectionable in fixing a 
limit to what any one may acquire by 
the mere favour of others, without any 
exercise of his faculties, and in requiring 
that if he desires any furthur accession 
of fortune, he shall work for it.* I 
do not conceive that the degree of 
limitation which this would impose 
on the right of bequest, would be 
felt as a burthensome restraint by 
any testator who estimated a largo 
fortune at its true value, that of the 
pleasures and advantages that can be 
purchased with it: on even the most 
extravagant estimate of which, it must 
be apparent to every one, that the dif¬ 
ference to tho happiness of the possessor 
between a moderate independence and 
five times as much, is insignificant 
when weighed against the enjoyment 
that might be given, and the perma¬ 
nent benefits diffused, by some other 
disposal of the four-fifths. So long 
indeed as the opinion practically pre¬ 
vails, that the best thing which can be 
done for objects of affection is to heap 
on them to satiety those intrinsically 
worthless things on which large fortunes 
are mostly expended, there might be 
little use in enacting such a law, even 
if it were possible to get it passed, 
since if there were the inclination, 
there would generally be the power of 

* In the case of capital employed in the 
hands of the owner himself, in carrying on 
any of the operations of industry, there are 
sti'ong grounds for leaving to him the power 
of bequeathing to one person the whole of 
the funds actually engaged in a single enter- 
pi’ise. It is well that he should bo enabled 
to leave the enterprise under the control of 
whichever of his heirs he regai’ds as best fit¬ 
ted to conduct it virtuously and efficiently; 
and the necessity (very frequent and incon¬ 
venient under the Fi’ench law) would be 
obviated, of breaking up a manufacturing 
or commercial establishment at the death of 
its chief. In like manner it should bo al¬ 
lowed to a proprietor who leaves to one of 
his successors tho moral burthen of keeping 
up an ancestral mansion and park or plea¬ 
sure-ground, to bestow along with them as 
much other property as is required for their 
sufficient maintenance. 




BOOK II. CHAPTER II. § 5. 


140 

evading it. The law would he unavail¬ 
ing unless the popular sentiment went 
energetically along with it; which 
(judging from the tenacious adherence 
of public opinion in France to the law 
of compulsory division) it would in 
some states of society and government 
be very likely to do, however much the 
contrary may be the fact in England 
and at the present time. If the re¬ 
striction could be made practically ef¬ 
fectual, the benefit would be great. 
Wealth which could no longer be em¬ 
ployed in over-enriching a few, would 
either be devoted to objects of public 
usefulness, or if bestowed on individuals, 
would be distributed among a larger 
number. While those enormous for¬ 
tunes which no one needs for any per¬ 
sonal purpose but ostentation or im¬ 
proper power, would become much less 
numerous, there would be a great mul¬ 
tiplication of persons in easy circum¬ 
stances, with the advantages of leisure, 
and all the real enjoyments which 
wealth can give, except those of vanity; 
a class by whom the services which a 
nation having leisured classes is enti¬ 
tled to expect from them, either by 
their direct exertions or by the tone 
they give to the feelings and tastes of 
the public, would be rendered in a much 
more beneficial manner than at present. 
A large portion also of the accumula¬ 
tions of successful industry would pro¬ 
bably be devoted to public uses, either 
by direct bequests to the State, or by 
the endowment of institutions; as is 
already done very largely in the United 
States, where the ideas and practice in 
the matter of inheritance seem to be 
unusually rational and beneficial.* 

* “ Munificent bequests and donations for 
public purposes, whether charitable or edu¬ 
cational, form a striking feature in the 
modern history of the United States, and 
especially of New England. Not only is it 
common for rich capitalists to leave by will 
a portion of their fortune towards the en¬ 
dowment of national institutions, but indi¬ 
viduals during their lifetime make magni¬ 
ficent grants of money for the same objects. 
There is here no compulsory law for the 
equal partition of property among children, 
as in France, and on the other hand, no 
custom of entail or primogeniture, as in 
England, so that the affluent feel themselves 
at liberty to share their wealth between 
their kindred and the public; it being im- 


§ 5. The next point to be consi¬ 
dered is, whether the reasons on which 
the institution of property rests, are 
applicable to all things in which a right 
of exclusive ownership is at present 
recognised ; and if not, on what other 
grounds the recognition is defensible. 

The essential principle of property 
being to assure to all persons what 
they have produced by their labour and 
accumulated by their abstinence, this 
principle cannot apply to what is not 
the produce of labour, the raw material 
of the earth. If the land derived its 
productive power wholly from nature, 
and not at all from industry, or if there 
were any means of discriminating what 
is derived from each source, it not only 
would not be necessary, but it would 
be the height of injustice, to let the gift 
of nature be engrossed by individuals. 
The use of the land in agriculture 
must indeed, for the time being, be of 
necessity exclusive; the same person 
who has ploughed and sown must be 
permitted to reap : but the land might 
be occupied for one season only, as 
among the ancient Germans; or might 
be periodically redivided as population 
increased : or the State might be the 
universal landlord, and the cultivators 
tenants under it, either on lease or at will. 

But though land is not the produce 
of industry, most of its valuable quali¬ 
ties are so. Labour is not only requi¬ 
site for using, but almost equally so for 
fashioning the instrument. Consider¬ 
able labour is often required at the com¬ 
mencement, to clear the land for cul¬ 
tivation. In many cases, even when 

possible to found a family, and parents hav¬ 
ing frequently the happiness of seeing all 
their children well provided for and inde¬ 
pendent long before their death. I have 
seen a list of bequests and donations made 
during the last thirty years for the benefit 
of religious, charitable, and literary institu¬ 
tions in the State of Massachusetts alone, 
ami they amounted to no less a sum than six 
millions of dollars, or more than a million 
sterling.”—Lyell’s Travels in America, \ ol. i. 
p. 2G3. 

In England, whoever leaves anything, be¬ 
yond trifling legacies, for public or benefi¬ 
cent objects, when he has any near relatives 
living, does so at the risk of being declared 
insane by a jury after his death, or at the 
least, of having the property wasted in a 
Chancery suit tc set aside the will. 




PROPERTY 

cleared, its productiveness is wholly 
tlie effect of labour and art. The 
Bedford Level produced little or no¬ 
thing until artificially drained. The 
bogs of Ireland, until the same thing 
is done to them, can produce little 
besides fuel. One of the barrennest 
soils in the world, composed of the ma¬ 
terial of the Goodwin Sands, the Pays 
de Waes in Flanders, has been so fer¬ 
tilized by industry, as to have become 
one of the most productive in Europe. 
Cultivation also requires buildings 
and fences, which are wholly the pro¬ 
duce of labour. The fruits of this in¬ 
dustry cannot b9 reaped in a short 
period. The labour and outlay are 
immediate, the benefit is spread over 
many years, perhaps over all future 
time. A holder will not incur this 
labour and outlay when strangers and 
not himself will bo benefited by it. If 
he undertakes such improvements, he 
must have a sufficient period before 
him in which to profit by them ; and 
he is in no way so sure of having al¬ 
ways a sufficient period as when his 
tenure is perpetual.* 

§ 6. These are the reasons which 
form the justification, in an economical 
point of view, of property in land. It 
is seen that they are only valid, in so 
far as the proprietor of land is its im¬ 
prover. Whenever, in any country, 
the proprietor, generally speaking, 

* “ What endowed man with intelligence 
and perseverance in labour, what made him 
direct all his efforts towards an end useful 
to his race, was the sentiment of perpetuity. 
The lands which the streams have deposited 
along their course are always the most fer¬ 
tile, but are also those which they menace 
with their inundations or corrupt by 
marshes. Under the guarantee of perpe¬ 
tuity men undertook long and painful la¬ 
bours to give the marshes an outlet, to erect 
embankments against inundations, to dis¬ 
tribute by irrigation-channels fertilizing 
waters over the same fields which the same 
waters had condemned to sterility. Under 
the same guarantee, man, no longer con¬ 
tenting himself with the annual products of 
the earth, distinguished among the wild ve¬ 
getation the perennial plants, shrubs, and 
trees which would be useful to him, im¬ 
proved them by culture, changed, it may 
almost be said, their very nature, and multi¬ 
plied their amount. There are fruits which 
it required centuries of cultivation to bring 
to their present perfection, and others which 


IN LAND. 141 

ceases to be the improver, political 
economy lias nothing to say in defence 
of landed property, as there established. 
In no sound theory of private property 
was it ever contemplated that the pro¬ 
prietor of land should be merely a 
sinecurist quartered on it. 

In Great Britain, the landed pro¬ 
prietor is not unfrequently an improver. 
But it cannot be said that he is gene¬ 
rally so. And in the majority of cases 
he grants the liberty of cultivation on 
such terms, as to prevent improvements 
from being made by any one else. In 
the southern parts of the island, as 
there are usually no leases, permanent 
improvements can scarcely be made 
except by the landlord’s capital; ac¬ 
cordingly the South, compared with 
the North of England, anti with the 
Lowlands of Scotland, is still extremely 
backward in agricultural improvement. 
The truth is, that any very general 
improvement of land by the landlords, 
is hardly compatible with a law or 
custom of primogeniture. When the 
land goes wholly to the heir, it gene¬ 
rally goes to him severed from the 
pecuniary resources which would ena¬ 
ble him to improve it, the personal 
property being absorbed by the provi¬ 
sion for younger children, and the land 
itself often heavily burthened for the 
same purpose. There is therefore but 
a small proportion of landlords who 
have the means of making expensive 

have been introduced from the most remote 
regions. Men have opened the earth to a 
great depth to renew the soil, and fertilize 
it by the mixture of its parts and by contact 
with the air; they have fixed on the hill¬ 
sides the soil which would have slid off, 
and have covered the face of the country 
with a vegetation everywhere abundant, and 
everywhere useful to the human race. 
Among their labours there are some of 
which the fruits can only be reaped at the 
end of ten or of twenty years; there are 
others by which their posterity will still 
benefit after several centuries. All have 
concurred in augmenting the productive 
force of nature, in giving to mankind a re¬ 
venue infinitely more abundant, a revenue 
of which a considerable part is consumed by 
those who have no share in the ownership 
of the land, but who would not have found 
a maintenance but for that appropriation of 
the soil by which they seem, at first sight, to 
have been disinherited.”—Sismondi, /Studies 
in Political Economy, Third Essay, on Ter¬ 
ritorial Wealth. 



142 BOOK II. CHAPTER II. § 6. 


improvements, unless they do it with 
borrowed money, and by adding to the 
mortgages with which in most cases 
the land was already burthened when 
they received it. But the position of 
the owner of a deeply mortgaged estate 
is so precarious; economy is so unwel¬ 
come to one whose apparent fortune 
greatly exceeds his real means, and 
the vicissitudes of rent and price which 
only trench upon the margin of his in¬ 
come, are so formidable to one who can 
call little more than the margin his 
own ; that it is no wonder if few land¬ 
lords find themselves in a condition to 
make immediate sacrifices for the sake 
of future profit. Were they ever so 
much inclined, these alone can pru¬ 
dently do it, who have seriously studied 
the principles of scientific agriculture: 
and great landlords have seldom seri¬ 
ously studied anything. They might 
at least hold out inducements to the 
farmers to do what they will not or 
cannot do themselves; but even in 
granting leases, it is in England a 
general complaint that they tie up 
their tenants by covenants grounded 
on the practices of an obsolete and ex¬ 
ploded agriculture : while most of them, 
by withholding leases altogether, and 
giving the farmer no guarantee of pos¬ 
session beyond a single harvest, keep 
the land on a footing little more favour¬ 
able to improvement than in the time 
of our barbarous ancestors, 

-immetata quibusjugera liberas 

Fruges et Cererem ferunt. 

Nee cultura placet longior annua. 

Landed property in England is thus 
very far from completely fulfilling the 
conditions which render its existence 
economically justifiable. But if insuffi¬ 
ciently realized even in England, in 
Ireland those conditions are not com¬ 
plied with at all. With individual 
exceptions (some of them very honour¬ 
able ones), the owners of Irish estates 
do nothing for the land but drain it 
of its produce. What has been epi- 
grammatically said in the discussions 
on “peculiar burthens” is literally 
true when applied to them; that the 
greatest “burthen on land” is the 
landlords. Returning nothing to the 
soil, they consume its whole produce, 


minus the potatoes strictly necessary 
to keep the inhabitants from dying of 
famine : and when the}’ - have any pur¬ 
pose of improvement, the preparatory 
step usually consists in not leaving 
even this pittance, but turning out the 
people to beggary if not to starvation.* 
When landed property has placed it¬ 
self upon this footing it ceases to be 
defensible, and the time has come for 
making some new arrangement of the 
matter. 

When the “ sacredness of property” 
is talked of, it should always be remem¬ 
bered, that any such sacredness does 
not belong in the same degree to landed 
property. No man made the land. 
It is the original inheritance of the 
whole species. Its appropriation is 
wholly a c|uestion of general expe¬ 
diency. When private property in 
land is not expedient, it is unjust. It 
is no hardship to any one, to be ex¬ 
cluded from what others have pro¬ 
duced : they were not bound to produce 
it for his use, and he loses nothing by 
not sharing in what otherwise would 
not have existed at all. But it is 
some hardship to be born into the 
world and to find all nature’s gifts 
previously engrossed, and no place left 
for the new-comer. To reconcile peo¬ 
ple to this, after they have once 
admitted into their minds the idea that 
any moral rights belong to them as 
human beings, it will always be neces¬ 
sary to convince them that the exclu¬ 
sive appropriation is good for mankind 
on the whole, themselves included. 
But this is what no sane human being 
could be persuaded of, if the relation 
between the landowner and the cul¬ 
tivator were the same everywhere as it 
has been in Ireland. 

Landed property is felt even by those 
most tenacious of its rights, to be a 
different thing from other property ; 
and where the bulk of the community 
have been disinherited of their share of 
it, and it has become the exclusive 

* I must beg the reader to bear in mind 
that ttiis paragraph was written eighteen 
years ago. So wonderful are the changes, 
both moral and economical, taking place in 
our age, that, without perpetually re-writing 
a work like the present, it is impossible to 
keep up with them. 




PROPERTY IN LAND. 


attribute of a small minority, men have 
generally tried to reconcile it, at least 
in theory, to their sense of justice, by 
endeavouring to attach duties to it, 
and erecting it into a- sort of magis¬ 
tracy, either moral or legal. But if 
the state is at liberty to treat the 
possessors of land as public func¬ 
tionaries, it is only going one step 
further to say, that it is at liberty to 
discard them. The claim of the land¬ 
owners to the land is altogether subor¬ 
dinate to the general policy of the 
state. The principle of property gives 
them no right to the land, but only 
a right to compensation for whatever 
portion of their interest in the land it 
may be the poliev of the state to 
deprive them of. To that, their claim 
is indefeasible. It is due to land- 
owners, and to owners of any property 
whatever, recognised as such by the 
state, that they should not be dis¬ 
possessed of it without receiving its 
pecuniary value, or an annual income 
equal to what they derived from it. 
This is duo on the general principles 
on which property rests. If the land 
was bought with the produce of the 
labour and abstinence of themselves or 
their ancestors, compensation is due to 
them on that ground; even if other¬ 
wise, it is still due on the ground of 
prescription. Nor can it ever be neces¬ 
sary for accomplishing an object by 
which the community altogether will 
gain, that a particular portion of the 
community should be immolated. 
When the property is of a kind to 
which peculiar affections attach them¬ 
selves, the compensation ought to 
exceed a bare pecuniary equivalent. 
But, subject to this proviso, the state 
is at liberty to deal with landed pro¬ 
perty as the general interests of the 
community may require, even to the 
extent, if it so happen, of doing with 
the whole, what is done with a part 
whenever a bill is passed for a railroad 
or a new street. The community has 
too much at stake in the proper cul¬ 
tivation of the land, and in the condi¬ 
tions annexed to the occupancy of it, 
to leave these things to the discretion 
of a class of persons called landlords, 
when they have shown themselves 


143 

unfit for the trust. The legislature, 
which if it pleased might convert 
the whole body of landlords into fund- 
holders or pensioners, might, a fortiori, 
commute the average receipts of Irish 
landowners into a fixed i*ent charge, 
and raise the tenants into proprietors; 
supposing always that the full market 
value of the land was tendered to the 
landlords, in case they preferred that 
to accepting the conditions proposed. 

There will be another place for dis¬ 
cussing the various modes of landed 
property and tenure, and the advan¬ 
tages and inconveniences of each ; in 
this chapter our concern is with the 
right itself, the grounds which justify 
it, and (as a corollary from these) the 
conditions by which it should be limited. 
To me it seems almost an axiom that 
property in land should be interpreted 
strictly, and that the balance in all 
cases of doubt should incline against 
the proprietor. The reverse is the 
case with property in moveables, and 
in all things the product of labour: 
over these, the owners power both of 
use and of exclusion should be abso¬ 
lute, except where positive evil to 
others would result from it; but in the 
case of land, no exclusive right should 
be permitted in any individual, which 
cannot be shown to be productive of 
positive good. To be allowed any ex¬ 
clusive right at all, over a portion of 
the common inheritance, while there 
are others who have no portion, is 
already a privilege. No quantity of 
moveable goods which a person can 
acquire by his labour, prevents others 
from acquiring the like by the same 
means; but from the very nature of 
the case, whoever owns land, keeps 
others out of the enjoyment of it. 
The privilege, or monopoly, is only 
defensible as a necessary evil; it be¬ 
comes an injustice when carried to any 
point to which the compensating good 
does not follow it. 

For instance, the exclusive right to 
the land for purposes of cultivation 
does not imply an exclusive right to it 
for purposes of access; and no such 
right ought to be recognized, except 
to the extent necessary to protect the 
produce against damage, and the 



BOOK IT. CHAPTER II. § 7 - 


144 

owner’s privacy against invasion. The 
pretension of two Dukes to shut up 
a part of the Highlands, and exclude 
the rest of mankind from many square 
miles of mountain scenery to prevent 
disturbance to wild animals, is an 
abuse ; it exceeds the legitimate bounds 
of the right of landed property. When 
land is not intended to be cultivated, 
no good reason can in general be given 
for its being private property at all; 
and if any one is permitted to call it 
his, he ought to know that he holds it 
"by sufferance of the community, and 
on an implied condition that his owner¬ 
ship, since it cannot possibly do them 
any good, at least shall not deprive 
them of any, which they could have 
derived from the land if it had been 
unappropriated. Even in the case of 
cultivated land, a man whom, though 
only one among millions, the law permits 
to hold thousands of acres as his single 
share, is not entitled to think that all 
this is given to him to use and abuse, 
and deal with as if it concerned nobody 
but himself. The rents or profits which 
he can obtain from it are at his sole 
disposal; but with regard to the land, 
in everything which he does with it, 
and in everything which he abstains 
from doing, he is morally bound, and 
should whenever the case admits be 
legally compelled, to make his interest 
and pleasure consistent with the public 
good. The species at large still re¬ 
tains, of its original claim to the soil 
of the planet which it inhabits, as much 
as is compatible with the purposes for 
which it has parted with the remainder. 

§ 7. Besides property in the pro¬ 
duce of labour, and property in land, 
there are other things which are ox- 
have been subjects of propei'ty, in 
which no proprietary rights ought to 
exist at all. But as the civilized world 
has in general made up its mind on 
most of these, there is no necessity for 
dwelling on them in this place. At 
the head of them, is property in human 
"beings. It is almost superfluous to 
observe, that this institution can have 
no place in any society even pretending 
to be founded on justice, or on fellow¬ 
ship between human creatures. But, 


iniquitous as it is, yet when the state 
has expressly legalized it, and human 
beings, for generations, have been 
bought, sold, and inherited under 
sanction of law, it is another wrong, in 
abolishing the property, not to make 
full compensation. This wrong was 
avoided by the great measure of justice 
in 1833, one of the most virtuous acts, 
as well as the most practically benefi¬ 
cent, ever done collectively by a nation. 
Other examples of property which 
ought not to have been created, are 
properties in public trusts; such as 
judicial offices under the old French 
regime, and the heritable jurisdictions 
which, in countries not wholly emerged 
from feudality, pass with the land. 
Our own country affords, as cases in 
point, that of a commission in the 
army, and of an advowson, or right of 
nomination to an ecclesiastical bene¬ 
fice. A property is also sometimes 
created in a right of taxing the public; 
in a monopoly, for instance, or other 
exclusive privilege. These abuses pre¬ 
vail most in semibarbarous countries; 
but are not without example in tho 
most civilized. In France there are 
several important trades and profes¬ 
sions, including notaries, attorneys, 
brokers, appi-aisers, printers, and (until 
lately) bakers and butchers, of which 
the numbers are limited by law. The 
brevet or privilege of one of the per¬ 
mitted number consequently brings a 
high price in the market. When this 
is the case, compensation probably 
could not with justice be refused, on 
the abolition of the privilege. There 
are other cases in wni;h this would be 
more doubtful. The question would 
turn upon what, in the peculiar cir¬ 
cumstances, was sufficient to constitute 
pi-escription; and whether the legal 
recognition which the abuse had ob¬ 
tained, was sufficient to constitute it 
an institution, or amounted only to an 
occasional licence. It would be absurd 
to claim compeixsation for losses caused 
by changes in a tariff', a thing confes¬ 
sedly valuable from year to year; or for 
monopolies like those granted to indivi¬ 
duals by the Tudors, favours of a despo¬ 
tic authority, which the power that gave 
was competent at any time to recal. 



CLASSES WHO DIVIDE THE PRODUCE. 145 


So much on the institution of pro¬ 
perty, a subject of which, for the pur¬ 
poses of political economy, it was 
indispensable to treat, but on which 
we could not usefully confine ourselves 
to economical considerations. We 


have now to inquire on what principles 
and with what results the distribution 
of the produce of land and labour is 
effected, under the relations which 
this institution creates among 1 the 
different members of the community. 


CHAPTER III. 


OF THE CLASSES AMOXG WHOM 

§ 1. PmvATE property being as- j 
sumed as a fact, we have next to enu¬ 
merate the different classes of persons 
to whom it gives rise ; whose concur¬ 
rence, or at least whose permission, is 
necessary to production, and who are 
therefore able to stipulate for a share 
of the produce. We have to inquire, 
according to what laws the produce 
distributes itself among these classes, 
by the spontaneous action of the inte¬ 
rests of those concerned : after which, 
a further question will be, what effects 
are or might be produced by laws, in¬ 
stitutions, and measures of government, 
in superseding or modifying that spon¬ 
taneous distribution. 

The three requisites of production, 
as has been so often repeated, are 
labour, capital, and land: understand¬ 
ing by capital, the means and ap¬ 
pliances which arc the accumulated 
results of previous labour, and by land, 
the materials and instruments supplied 
by nature, whether contained in the 
interior of the earth or constituting its 
surface. Since each of these elements 
of production may be separately appro¬ 
priated, the industrial community may 
be considered as divided into land- 
owners, capitalists, and productive 
labourers. Each of these classes, as 
such, obtains a share of the produce : 
no other person or class obtains any¬ 
thing, except by concession from them. 
The remainder of the community is, 
in fact, supported at their expense, 
giving, if any equivalent, one consist¬ 
ing of unproductive services. These 
three classes, therefore, are considered 

P.E. 


THE PRODUCE IS DISTRIBUTED. 

in political economy as making up the 
whole community. 

§ 2. But although these three 
sometimes exist as separate classes, 
dividing the produce among them, they 
do not necessarily or always so exist. 
The fact is so much otherwise, that 
there are only one or two communities 
in which the complete separation of 
these classes is the general rule. Eng¬ 
land and Scotland, with parts of Bel¬ 
gium and Holland, are almost the only 
countries in the world where the land, 
capital, and labour employed in agri¬ 
culture, are generally the property of 
separate owners. The ordinary case 
is, that the same person owns either 
two of these requisites, or all three. 

The case in which the same person 
owns all three, embraces the two ex* 
tremes of existing society, in respect 
to the independence and dignity of the 
labouring class. First, when the 
labourer himself is the proprietor. 
This is the commonest case in the 
Northern States of the American 
Union; one of the commonest in 
France, Switzerland, the three Scan¬ 
dinavian kingdoms, and parts of Ger¬ 
many ;* and a common case in parts 

* “The Norwegian return” (say the 
Commissioners of Poor Law Enquiry, to 
whom information was furnished from nearly 
every country in Europe and America by 
the ambassadors and consuls there) “ states 
that at the last census in 1825, out of a popu¬ 
lation of 1,051,318 persons, there were 59,404 
freeholders. As by 59,464 freeholders must 
be meant 59,464 heads of families, or about 
300,000 individuals; the freeholders must 
form more than one-fourth of the whole popu- 





146 BOOK II. CHAPTER III. § 3. 


of Italy and in Belgium. In all these 
countries there are, no doubt, large 
landed properties, and a still greater 
number which, without being large, 
require the occasional or constant aid 
of hired labourers. Much, however, 
of the land is owned in portions too 
small to require any other labour than 
that of the peasant and his family, or 
fully to occupy even that. The capital 
employed is not always that of the 
peasant proprietor, many of these small 
properties being mortgaged to obtain 
the means of cultivating; but the 
capital is invested at the peasant’s 
risk, and though ho pays interest for 
it, it gives to no one any right of inter¬ 
ference, except perhaps eventually to 
take possession of the land, if the in¬ 
terest ceases to be paid. 

The other case in which the land, 
labour, and capital, belong to the same 
person, is the case of slave countries, 
in which the labourers themselves are 
owned by the landowner. Our West 
India colonies before emancipation, and 
the sugar colonies of the nations by 
whom a similar act of justice is still 
unperformed, are examples of large 
establishments for agricultural and 
manufacturing labour (the production 
of sugar and rum is a combination of 
both) in which the land, the factories 

lation. Mr. Macgregor states that in Den¬ 
mark (by which Zealand and the adjoining 
islands are probably meant) out of a popula¬ 
tion of 92G,110, the number of landed pro¬ 
prietors and fanners is 415,110, or nearly 
one-half. In Sleswick-IIolstein, out of a 
popu'ation of 604,0S5, it is 196,017, or about 
one-third. The proportion of proprietors 
and farmers to the whole population is not 
given in Sweden; but the Stockholm return 
estimates the average quantity of land an¬ 
nexed to a labourer’s habitation at from one 
to live acres; and though the Gottenburg 
return gives a lower estimate, it adds, that 
the peasants possess much of the land. In 
Wurtemburg we are told that more than 
two-thirds of the labouring population are 
the proprietors of their own habitations, 
and that almost all own at least a garden of 
from three-quarters of an acre to an acre 
and a half.” In some of these statements, 
proprietors and farmers are not discrimi¬ 
nated ; but “ all the returns concur in stating 
the number of day-labourers to be very 
small .”—(Preface to Foreign Communications , 
•p xxxviii.) As the general status of the la¬ 
bouring people, the condition of a work¬ 
man for hire is almost peculiar to Great 
Britain. 


(if they may bo so called), the ma¬ 
chinery, and the degraded labourers, 
are all the property of a capitalist. In 
this case, as well as in its extreme 
opposite, the case of the peasant pro¬ 
prietor, there is no division of the 
produce. 

§ 3. When the three requisites are 
not all owned by the same person, it 
often happens that tnx) of them are so. 
Sometimes the same person owns the 
capital and the land, but not the labour. 
The landlord makes his engagement 
directly with the labourer, and supplies 
the whole or part of the stock neces¬ 
sary for cultivation. This system is 
the usual one in those parts of Conti¬ 
nental Europe, in which the labourers 
are neither serfs on the one hand, nor 
proprietors on the other. It was very 
common in France before the Revolu¬ 
tion, and is still much practised in 
somo parts of that country, when the 
land is not the property of the culti¬ 
vator. It prevails generally in the 
level districts of Italy, except those 
principally pastoral, such as the Ma- 
remma of Tuscany and the Campagna 
of Rome. On this system the division 
of the produce is between two classes, 
the landowner and the labourer. 

In other cases again the labourer 
does not own the land, but owns the 
little stock employed on it, the land¬ 
lord not being in the habit of supplying 
any. This system generally prevails 
in Ireland. It is nearly universal in 
India, and in most countries of the 
East; whether the government retains, 
as it generally does, the ownership of 
the soil, or allows portions to become, 
either absolutely or in a qualified sense, 
the property of individuals. In India, 
however, things are so far better than 
in Ireland, that the owner of land is 
in the habit of making advances to 
the cultivators, if they cannot cultivate 
without them. For these advances 
the native landed proprietor usually 
demands high interest; but the prin¬ 
cipal landowner, the government, 
makes them gratuitously, recovering 
the advance after the harvest, together 
with the rent. The produce is here 
divided, U3 before between the same 



COMPETITION 

two classes, tlie landowner and the 
labourer. 

These are the principal variations 
in the classification of those among 
whom the produce of agricultural 
labour is distributed. In the case of 
manufacturing industry there never 
are more than two classes, the 
labourers and the capitalists. The 
original artisans in all countries were 
either slaves, or the women of the 
family. In the manufacturing esta¬ 
blishments of the ancients, whether 
on a large or on a small scale, the 
labourers were usually the property of 
the capitalist. In general, if any 
manual labour was thought compatible 
with the dignity of a freeman, it was 
only agricultural labour. The converse 
system, in which the capital was owned 
by the labourer, was coeval with free 
labour, and under it the first great ad¬ 
vances of manufacturing industry were 
achieved. The artisan owned the 
loom or the few tools he used, and 


AND CUSTOM. 147 

worked on his own account; or at least 
ended by doing so, though ho usually 
worked for another, first as apprentice 
and next as journeyman, for a certain 
number of years before he could be 
admitted a master. But the status 
of a permanent journeyman, all his 
life a hired labourer and nothing more, 
had no place in the crafts and guilds 
of the Middle Ages. In country vil¬ 
lages, where a carpenter or a black¬ 
smith cannot live and support hired 
labourers on the returns of his business, 
he is even now his own workman; and 
shopkeepers in similar circumstances 
are their own shopmen, or shop women. 
But wherever the extent of the market 
admits of it, the distinction is now 
fully established between the class of 
capitalists, or employers of labour, and 
the class of labourers ; the capitalists, 
in general, contributing no other labour 
than that of direction and superin¬ 
tendence. 


CHAPTER IV. 

OF COMPETITION AND CUSTOM. 


§ 1. Under the rule of individual 
property, the division of the produce 
is the result of two determining agen¬ 
cies : Competition, and Custom. It is 
important to ascertain the amount of 
influence which belongs to each of these 
causes, and in what manner the opera¬ 
tion of one is modified by the other. 

Political economists generally, and 
English political economists above 
others, have been accustomed to lay 
almost exclusive stress upon the first 
of these agencies; to exaggerate the 
effect of competition, and to take into 
little account the other and conflicting 
principle. They are apt to express 
themselves as if they thought that 
competition actually does, in all cases, 
whatever it can be shown to be the 
tendency of competition to do. This 
is partly intelligible, if we consider 
that only through the principle of com¬ 


petition has political economy any 
pretension to the character of a science. 
So far as rents, profits, wages, prices, 
are determined by competition, laws 
may bo assigned for them. Assume 
competition to be their exclusive regu¬ 
lator, and principles of broad generality 
and scientific precision may be laid 
down, according to which they will be 
regulated. The political economist 
justly deems this his proper business: 
and, as an abstract or hypothetical sci¬ 
ence, political economy cannot be re¬ 
quired to do, and indeed cannot do, 
anything more. But it would be a 
great misconception of the actual course 
of human affairs, to suppose that com¬ 
petition exercises in fact this unlimited 
sway. I am not speaking of monopo¬ 
lies, either natural or artificial, or of 
any interferences of authority with the 
liberty of production or exchange. 

L 2 





143 BOOK II. CHAPTER IV. § 2. 


Such disturbing onuses have always 
been allowed for by political economists. 
I speak of cases in which there is no¬ 
thing to restrain competition : no hin¬ 
drance to it either in the nature of the 
case or in artificial obstacles; yet in 
which the result is not determined by 
competition, but by custom or usage ; 
competition either not taking place at 
all, or producing its effect in quite a 
different manner from that which is 
ordinarily assumed to be natural to it. 

§ 2. Competition, in fact, has only 
become in any considerable degree the 
governing principle of contracts, at a 
comparatively modern period. The 
farther we look back into history, the 
more we see all transactions and en¬ 
gagements under the influence of fixed 
customs. The reason is evident. Cus¬ 
tom is the most powerful protector of 
the weak against the strong; their sole 
protector where there are no laws or 
government adequate to the purpose. 
Custom is a barrier which, even in the 
most oppressed condition of mankind, 
tyranny is forced in some degree to 
respect. To the industrious population 
in a turbulent military community, 
freedom of competition is a vain phrase; 
they are never in a condition to make 
terms for themselves by it: there is 
always a master who throws his sword 
into the scale, and the terms are such 
as he imposes. But though the law 
of the strongest decides, it is not the 
interest nor in general the practice of 
the strongest to strain that law to the 
utmost, and every relaxation of it has 
a tendency to become a custom, and 
every custom to become a right. Eights 
thus originating, and not competition 
in any shape, determine, in a rude state 
of society, the share of the produce en¬ 
joyed by those who produce it. The 
relations, more especially, between the 
landowner and the cultivator, and the 
payments made by the latter to the 
former, are, in all states of society but 
the most modern, determined by the 
usage of the country. Never until late 
times have the conditions of the occu¬ 
pancy of land been (as a general rule) 
an affair of competition. The occupier 
for the time has very commonly been 


considered to have a right to retain 
his holding, while he fulfils the cus¬ 
tomary requirements; and has thus 
become, in a certain sense, a co-pro¬ 
prietor of the soil. Even where the 
holder has not acquired this fixity of 
tenure, the terms of occupation have 
often been fixed and invariable. 

In India, for example, and other 
Asiatic communities similarly consti¬ 
tuted, the ryots, or peasant-farmers, 
are not regarded as tenants at will, 
nor even as tenants by virtue of a lease- 
In most villages there are indeed some 
ryots on this precarious footing, con¬ 
sisting of those, or the descendants of 
those, who have settled in the place at 
a known and comparatively recent 
period: but all who are looked upon 
as descendants or representatives of 
the original inhabitants, and even 
many mere tenants of ancient date, 
are thought entitled to retain their 
land, as long as they pay the customary 
rents. What these customary rents 
are, or ought to be, has indeed, inmost 
cases, become a matter of obscurity; 
usurpation, tyranny, and foreign con¬ 
quest having to a great degree obli¬ 
terated the evidences of them. But 
when an old and purely Hindoo prin¬ 
cipality falls under the dominion of the 
British Government, or the manage¬ 
ment of its officers, and when the 
details of the revenue system come to 
be inquired into, it is usually found 
that though the demands of the great 
landholder, the State, have been swelled 
by fiscal rapacity until all limit is 
practically lost sight of, it has yet been 
thought necessary to have a distinct 
name and a separate pretext for each 
increase of exaction; so that the de¬ 
mand has sometimes come to consist 
of thirty or forty different items, in ad¬ 
dition to the nominal rent. This cir¬ 
cuitous mode of increasing the pay¬ 
ments assuredly would not have been 
resorted to, if there had been an ac¬ 
knowledged right in the landlord to 
increase the rent. Its adoption is a 
proof that there was once an effective 
limitation, a real customary rent; and 
that the understood right of the ryot 
to the land, so long as he paid rent 
according to custom, was at some tirno 



COMPETITION 

or other more than nominal.* The 
British Government of India always 
simplifies the tenure by consolidating 
the various assessments into one, thus 
making the rent nominally as well as 
really an arbitrary thing, or at least a 
matter of specific agreement: but it 
scrupulously respects the right of the 
ryot to the land, though until the re¬ 
forms of the present generation (reforms 
even now only partially carried into 
effect) it seldom left him much more 
than a bare subsistence. 

In modem Europe the cultivators 
have gradually emerged from a state 
of personal slavery. The barbarian 
conquerors of the Western empire 
found that the easiest mode of ma¬ 
naging their conquests would be to 
leave the occupation of the land in the 
hands in which they found it, and to 
save themselves a labour so uncongenial 
as the superintendence of troops of 
slaves, by allowing the slaves to retain in 
a certain degree the control of their own 
actions, under an obligation to furnish 
the lord with provisions and labour. 
A common expedient was to assign to 
the serf, for his exclusive use, as much 
land as was thought sufficient for his 
support, and to make him work on the 
other lands of his lord whenever re¬ 
quired. By degrees these indefinite 
obligations were transformed into a 
definite one, of supplying a fixed quan¬ 
tity of provisions or a fixed quantity of 
labour: and as the lords, in time, be¬ 
came inclined to employ their income 
in the purchase of luxuries rather than 
in the maintenance of retainers, the 
payments in kind were commuted for 
payments in money. Each concession, 
at first voluntary and revocable at 
pleasure, gradually acquired the force 
of custom, and was at last recognised 
and enforced by the tribunals. In this 
manner the serfs progressively rose 
into a free tenantry, who held their 
land in perpetuity on fixed conditions. 
The conditions were sometimes very 
onerous, and the people very miserable. 

* The ancient law books of the Hindoos 
mention in some cases one-sixth, in others 
one-fourth of the produce, as a proper rent; 
but there is no evidence that the rules laid 
down in those books were, at any period of 
history, really acted upon. 


AND CUSTOM. 149 

But their obligations were determined 
by the usage or law of the country, and 
not by competition. 

Where the cultivators had never 
been, strictly speaking, in personal 
bondage, or after they had ceased to 
be so, the exigencies of a poor and little 
advanced society gave rise to another 
arrangement, which in some parts of 
Europe, even highly improved parts, 
has been found sufficiently advan¬ 
tageous to be continued to the present 
day. I speak of the metayer system. 
Under this, the land is divided, in small 
farms, among single families, the land¬ 
lord generally supplying the stock 
which the agricultural system of the 
country is considered to require, and 
receiving, in lieu of rent and profit, a 
fixed proportion of the produce. This 
proportion, which is generally paid in 
kind, is usually (as is implied in the 
words metayer, mezzaiuolo, and me- 
dietarius,) one-half. There are places, 
however, such as the rich volcanic soil 
of the province of Naples, where the 
landlord takes two-thirds, and yet the 
cultivator by means ot an excellent 
agriculture contrives to live. But 
whether the proportion is two-thirds or 
one-half, it is a fixed proportion; not 
variable from farm to farm, or from 
tenant to tenant. The custom of the 
country is the universal rule; nobody 
thinks of raising or lowering rents, or 
of letting land on other than the cus¬ 
tomary conditions. Competition, as a 
regulator of rent, has no existence. 

§ 3. Prices, whenever there was 
no monopoly, came earlier under the 
influence of competition, and are much 
more universally subject to it, than 
rents: but that influence is by no 
means, even in the present activity of 
mercantile competition, so absolute as 
is sometimes assumed. There is no 
proposition which meets us in the field 
of political economy oftener than this 
—that there cannot be two prices in 
the same market. Such undoubtedly 
is the natural effect of unimpeded com¬ 
petition ; yet every one knows that 
there are, almost always, two prices in 
the same market. Not only are there 
in every large town, and in almost 





150 BOOK II. CHAPTER IV. § 3. 


every trade, cheap shops and dear 
shops, hut the same shop often sells 
the same article at different prices to 
different customers: and, as a general 
rule, each retailer adapts his scale of 
prices to the class of customers whom 
lie expects. The wholesale trade, in 
the great articles of commerce, is really 
under the dominion of competition. 
There, the buyers as well as sellers 
are traders or manufacturers, and their 
purchases are not influenced hy indo¬ 
lence or vulgar finery, nor depend on 
the smaller motives of personal con¬ 
venience, but are business transactions. 
In the wholesale markets therefore it 
is true as a general proposition, that 
there are not two prices at one time 
for the same thing: there is at each 
time and place a market price, which 
can be quoted in a price-current. But 
retail price, the price paid by the actual 
consumer, seems to feel very slowly and 
imperfectly the effect of competition ; 
and when competition does exist, it 
often, instead of lowering prices, merely 
divides the gains of the high price 
among a greater number of dealers. 
Hence it is that, of the price paid by 
the consumer, so large a proportion is 
absorbed by the gains of retailers ; and 
any one who inquires into the amount 
which reaches the hands of those who 
made the things he buys, will often be 
astonished at its smallness. When 
indeed the market, being that of a 
great city, holds out a sufficient induce¬ 
ment to large capitalists to engage in 
retail operations, it is generally found 
a better speculation to attract a large 
business by underselling others, than 
merely to divide the field of employ¬ 
ment with them. This influence of 
competition is making itself felt more 
and more through the principal 
branches of retail trade in the large 
towns ; and the rapidity and cheapness 
of transport, by making consumers 
less dependent on the dealers in their 
immediate neighbourhood, are tending 
to assimilate more and more the whole 
country to a large town ; but hitherto 
it is only in the great centres of business 
that retail transactions have been 
chiefly, or even much, determined by 
competition. Elsewhere it rather acts, 


when it acts at all, as an occasional 
disturbing influence; the habitual re¬ 
gulator is custom, modified from time 
to time by notions existing in the 
minds of purchasers and sellers, of 
some kind of equity or justice. 

In many trades the terms on which 
business is done are a matter of posi¬ 
tive arrangement among the trade, 
who use the means they always pos¬ 
sess of making the situation of any 
member of the body who departs from 
its fixed customs, inconvenient or dis¬ 
agreeable. It is well known that the 
bookselling trade was, until lately, one 
of these, and that notwithstanding the 
active spirit of rivalry in the trade, 
competition did not produce its natural 
effect in breaking down the trade rules. 
All professional remuneration is regu¬ 
lated by custom. The fees of physi¬ 
cians, surgeons, and barristers, the 
charges of attorneys, are nearly inva¬ 
riable. Not certainly for want of 
abundant competition in those profes¬ 
sions, but because the competition ope¬ 
rates by diminishing each competitor’s 
chance of fees, not by lowering the fees 
themselves. 

Since custom stands its ground 
against competition to so considerable 
an extent, even where, from the multi¬ 
tude of competitors and the general 
energy in the pursuit of gain, the spirit 
of competition is strongest, we may be 
sure that this is much more the case 
where people are content with smaller 
gains, and estimate their pecuniary 
interest at a lower rate when balanced 
against their ease or their pleasure. 
I believe it will often be found, in Con¬ 
tinental Europe, th at prices and charges, 
of some or of all sorts, are much higher 
in some places than in others not far 
distant, without its being possible to 
assign any other cause than that it has 
always been so: the customers are 
used to it, and acquiesce in it. An 
enterprising competitor, with sufficient 
capital, might force down the charges, 
and make his fortune during the pro¬ 
cess ; but there are no enterprising 
competitors ; those who have capital 
prefer to leave it where it is, or to 
make less profit by it in a more quiet 
way. 



SLAVERY. 


These observations must be received 
as a general correction, to be applied 
whenever relevant, whether expressly 
mentioned or not, to the conclusions 
contained in the subsequent portions 
of this Treatise. Our reasonings must, 
in general, proceed as if the known 
and natural effects of competition were 
actually produced by it, in all cases in 
which it is not restrained by some 
positive obstacle. Where competition, 
though free to exist, does not exist, or 
where it exists, but has its natural 
consequences overruled by any other 
agency, the conclusions will fail more 
or less of being applicable. To escape 


151 

error, we ought, in applying the con¬ 
clusions of political economy to the 
actual affairs of life, to consider not 
only what will happen supposing the 
maximum of competition, but how far 
the result will be affected if competi¬ 
tion falls short of the maximum. 

The states of economical relation 
which stand first in order, to be dis¬ 
cussed and appreciated, are those in 
which competition has no part, the 
arbiter of transactions being either 
brute force or established usage. These 
will be the subject of the next four 
chapters. 


CHAP 


OF 6L 

§ 1. Among the forms which so¬ 
ciety assumes under the influence of 
the institution of property, there are, 
as I have already remarked, two, 
otherwise of a widely dissimilar cha¬ 
racter, but resembling in this, that the 
ownership of the land, the labour, and 
the capital, is in the same hands. One 
of these cases is that of slavery, the 
other is that of peasant proprietors. 
In the one, the landowner owns the 
labour, in the other the labourer owns 
the land. We begin with the first. 

In this system all the produce be¬ 
longs to the landlord. The food and 
other necessaries of his labourers are 
part of his expenses. The labourers 
possess nothing but v T hat he thinks fit 
to give them, and until he thinks fit to 
take it back: and they work as hard 
as he chooses, or is able, to compel 
them. Their wretchedness is only 
limited by his humanity, or his pecu¬ 
niary interest. With the first conside¬ 
ration, we have on the present occa¬ 
sion nothing to do. What the second 
in so detestable a constitution of so¬ 
ciety may dictate, depends on the 
facilities for importing fresh slaves. 
I if'ull-grown able-bodied slaves can be 
procured in sufficient numbers, and 


1 E R V. 

VERY. A 

imported at a moderate expense, self- 
interest will recommend working the 
slaves to death, and replacing them 
by importation, in preference to the 
slow and expensive process of breeding 
them. Nor are the slave-owners gene¬ 
rally backward in learning this lesson. 
It is notorious that such was the prac¬ 
tice in our slave colonies, while the 
slave trade v’as legal; and it is said 
to be so still in Cuba. 

When, as among the ancients, the 
slave-market could only be supplied 
by captives either taken in war, or 
kidnapped from thinly scattered tribes 
on the remote confines of the known 
world, it w T as generally more profitable 
to keep up the number by breeding, 
which necessitates a far better treat¬ 
ment of them; and for this reason, 
joined with several others, the condi¬ 
tion of slaves, notwithstanding occa¬ 
sional enormities, was probably much 
less bad in the ancient world than in 
the colonies of modern nations. The 
Helots are usually cited as the type of 
the most hideous form of personal 
slavery, but with how little truth, ap¬ 
pears from the fact that they were re¬ 
gularly armed (though not with the 
panoply of the hopiite) and formed an 





152 BOOK II. CIU 

integral part of the military strength 
of the State. They were doubtless an 
inferior and degraded caste, but their 
slavery seems to have been one of the 
least onerous varieties of serfdom. 
Slavery appears in far more frightful 
colours among the Romans, during the 
period in which the Roman aristocracy 
was gorging itself with the plunder of 
a newly-conquered world. The Romans 
were a cruel people, and the worthless 
nobles sported with the lives of their 
myriads of slaves with the same reck¬ 
less prodigality with which they squan¬ 
dered any other part of their ill-ac¬ 
quired possessions. Yet, slavery is 
divested of one of its worst features 
when it is compatible with hope : en¬ 
franchisement was easy and common : 
enfranchised slaves obtained at once 
the full rights of citizens, and instances 
were frequent of their acquiring not 
only riches, hut latterly even honours. 
By the progress of milder legislation 
under the Emperors, much of the pro¬ 
tection of law was thrown round the 
slave, he became capable of possessing 
property, and the evil altogether as¬ 
sumed a considerably gentler aspect. 
Until, however, slavery assumes the 
mitigated form of villenage, in which 
not only the slaves have property and 
legal rights, but their obligations are 
more or less limited by usage, and 
they partly labour for their own bene¬ 
fit ; their condition is seldom such as 
to produce a rapid growth either of 
population or of production. 

§ 2. So long as slave countries are 
underpeopled in proportion to their 
cultivable land, the labour of the 
slaves, under any tolerable manage¬ 
ment, produces much more than is 
sufficient for their support; especially 
as the great amount of superintendence 
which their labour requires, preventing 
the dispersion of the population, en¬ 
sures some of the advantages of com- 

o 

bined labour. Hence, in a good soil 
and climate, and with reasonable care 
of his own interests, the owner of many 
slaves has the means of being rich. 
The influence, however, of such a state 
of society on production, is perfectly 
well understood. It is a truism to 


YPTER Y. § 2. 

assert, that labour extorted by fear of 
punishment is inefficient and unpro¬ 
ductive. It is true that in some cir¬ 
cumstances, human beings can be 
driven by the lash to attempt, and 
even to accomplish, things which they 
would not have undertaken for any 
payment which it could have been 
worth while to an employer to offer 
them. And it is likely that productive 
operations which require much com¬ 
bination of labour, the production of 
sugar for example, would not have 
taken place so soon in the American 
colonies, if slavery had not existed to 
keep masses of labour together. There 
are also savage tribes so averse from 
regular industry, that industrial life is 
scarcely able to introduce itself among 
them until they are cither conquered 
and made slaves of, or become con¬ 
querors and make others so. But 
after allowing the full value of these 
considerations, it remains certain that 
slavery is incompatible with any high 
state of the arts of life, and any great 
efficiency of labour. For all products 
which require much skill, slave coun¬ 
tries are usually dependent on fo¬ 
reigners. Hopeless slavery eftectu- 
alty brutifies the intellect; and intel¬ 
ligence in the slax’es, though often 
encouraged in the ancient world and 
in the East, is in a more advanced 
state of society a source of so much 
danger and an object of so much dread 
to the masters, that in some of the 
States of America it is a highly penal 
offence to teach a slave to read. All 
processes carried on by slave laboxir 
are conducted in the rudest and most 
unimproved manner. And even the 
animal strength of the slave is, on an 
average, not half exerted. The unpro¬ 
ductiveness and wastefulness of the in¬ 
dustrial system in the Slave States is 
instructively displayed in the valuable 
writings of Mr. Olmsted. The mildest 
form of slavery is certainly the condi¬ 
tion of the serf, who is attached to the 
soil, supports himself from his allot¬ 
ment, and works a certain number of 
days in the week for his lord. Yet 
there is but one opinion on the ex¬ 
treme inefficiency of serf labour. The 
following passage is from Professor 



SLAVERY. 


Jones,* whose Essay on the Distribu¬ 
tion of Wealth (or rather on Rent), is 
a copious repertory of valuable facts 
on the landed tenures of different 
countries. 

“ The Russians, or rather those 
German writers who have observed 
the manners and habits of Russia, state 
some strong facts on this point. Two 
Middlesex mowers, they say, will mow 
in a day as much grass as six Russian 
serfs, and in spite of the dearness of pro¬ 
visions in England and their cheapness 
in Russia, the mowing a quantity of 
hay which would cost an English 
farmer half a copeck, will cost a Eus- 
sion proprietor three or four copecks.f 
r lhe Prussian counsellor of state, Jacob, 
is considered to have proved, that in 
Russia, where everything is cheap, the 
labour of a serf is doubly as expensive 
as that of a labourer in England. M. 
Schmalz gives a startling account of 
the unproductiveness of serf labour in 
Prussia, from his own knowledge and 
observation.f In Austria, it is dis¬ 
tinctly stated, that the labour of a serf 
is equal to only one-third of that of a 
free hired labourer. This calculation, 
made in an able work on agriculture 
(with some extracts from which I have 
been favoured), is applied to the prac¬ 
tical purpose of deciding on the 
number of labourers necessary to cul¬ 
tivate an estate of a given magnitude. 
!to palpable, indeed, are the ill effects 
of labour rents on the industry of the 
agricultural population, that in Austria 
itself, where proposals of changes of 
any kind do not readily make their 
way, schemes and plans for the com¬ 
mutation of labour rents are as popular 
as in the more stirring German pro¬ 
vinces of the North.”§ 

What is wanting in the quality of 
the labour itself, is not made up by 
any excellence in the direction and 

* Essay on the Distribution of Wealth and 
on the Sources of Taxation. By the Rev. 
Richard Jones. Page 50. 

t “ Schmalz. Economie Folitique, French 
translation, vol. i. p. 6G.” 

x Vol. ii. p. 107. 

§ The Hungarian revolutionary govern¬ 
ment, during its brief existence, bestowed on 
that country one of the greatest benefits it 
could receive, and one which the tyranny 
that succeeded has not dax-ed to take away: 


153 

superintendence. As the same writer* 
remarks, the landed proprietors “ aro 
necessarilv, in their character of cul- 
tivators of their own domains, the 
only guides and directors of the in¬ 
dustry of the agricultural population,” 
since there can be no intermediate 
class of capitalist farmers where the 
labourers are the property of the lord. 
Great landowners are everywhere an 
idle class, or if they labour at all, addict 
themselves only to the more exciting 
kinds of exertion; that lion's share 
which superiors always reserve for 
themselves. “ It would,’’ as Mr. Jones 
observes, “be hopeless and irrational 
to expect, that a race of noble pro¬ 
prietors, fenced round with privileges 
and dignity, and attracted to military 
and political pursuits by the advan¬ 
tages and habits of their station, should 
ever become attentive cultivators as a 
body.” Even in England, if the cul¬ 
tivation of every estate depended upon 
its proprietor, any one can judge what 
would be the result. There would bo 
a few cases of great science and energy, 
and numerous individual instances of 
moderate success, but the general state 
of agriculture would be contemptible. 

§ 3. Whether the proprietors them¬ 
selves would lose by the emancipation 
of their slaves, is a different question 
from the comparative effectiveness of 
free and slave labour to the community. 
There has been much discussion of 
this question as an abstract thesis ; as 
if it could possibly admit, of any uni¬ 
versal solution. Whether slavery or 
free labour is most profitable to the 
employer, depends on the wages of the 
free labourer. These, again, depend 
on the numbers of the labouring popu¬ 
lation, compared with the capital and 
the land. Hired labour is generally 
so much more efficient than slave 
labour, that the employer can pay a 
considerably greater value in wages, 
than the maintenance of his slaves 
cost him before, and yet be a gainer 

it fi’eed the peasantry from what remained 
of the bondage of sei’fdom, the labour rents ; 
decreeing compensation to the landlords at 
the expense of the state, and not at that of 
the liberated peasants. 

* Jones, pp. 53, 54. 






154 BOOK II. CHAPTER V. § 3. 


by the change: bnt he cannot do this 
without limit. The decline of serfdom 
in Europe, and its extinction in the 
Western nations, were doubtless has¬ 
tened by the changes which the growth 
of population must have made in the 
pecuniary interests of the master. As 
population pressed harder upon the 
land, without any improvement in 
agriculture, the maintenance of the 
serfs necessarily became more costly, 
and their labour less valuable. With 
the rate of wages such as it is in Ire¬ 
land, or in England (where, in propor¬ 
tion to its efficiency, labour is quite as 
cheap as in Ireland), no one pan for a 
moment imagine that slavery could 
be profitable. If the Irish peasantry 
were slaves, their masters would be as 
willing, as their landlords now are, to 
pay large sums merely to get rid of 
them. In the rich and undcrpeopled 
soil of the West India islands, there is 
just as little doubt that the balance of 
profits between free and slave labour 
was greatly on the side of slavery, and 
that the compensation granted to the 
slaveowners for its abolition was not 
more, perhaps even less, than an equi¬ 
valent for their loss. 

More needs not be said here on a 
cause so completely j udged and decided 
as that of slavery. Its demerits are 
no longer a question requiring argu¬ 
ment ; though the temper of mind 
manifested by the larger part of the 
influential classes in Great Britain 
respecting the struggle now taking 
place in America, shows how grievously 
the feelings of the present generation 
of Englishmen, on this subject, have 
fallen behind the positive acts of the 
generation which preceded them. That 
the sons of the deliverers of the West 


Indian Negroes should see with com¬ 
placency, and encourage by their sym¬ 
pathies, the foundation of a great and 
powerful military commonwealth, 
pledged by its principles and driven 
by its strongest interests to be the 
armed propagator of slavery through 
every region of the earth into which its 
power can penetrate, discloses a men¬ 
tal state in the leading portion of our 
higher and middle classes, which it is 
melancholy to see, and will be a lasting 
blot in English history. Fortunately 
they have stopped short of actually 
aiding, otherwise than by words, the 
nefarious enterprise to which they have 
not been ashamed of wishing success; 
and it is now probable that at the ex¬ 
pense of the best blood of the Free 
States, but to their immeasurable ele¬ 
vation in mental and moral worth, the 
curse of slaverv will be cast out from 
the great American republic, to find its 
last temporary refuge in Brazil and 
Cuba. No European country, except 
Spain alone, any longer participates in 
the enormity. Even serfage has now 
ceased to have a legal existence in 
Europe: Denmark has the honour of 
being the first Continental nation which 
imitated England in liberating its co¬ 
lonial slaves; and the abolition of 
slavery was one of the earliest acts of 
the heroic and calumniated Provisional 
Government of France. The Dutch 
Government was not long behind, and 
its colonies and dependencies are now, 
I believe, without exception, free from 
actual slavery: though forced labour 
for the public authorities is still a re¬ 
cognised institution in Java, soon, we 
may hope, to be exchanged for complete 
personal freedom. 







PEASANT PROPRIETORS. 


155 


CHAPTER VI. 

« 

OF PEASANT PROPRIETORS. 


§ 1. In tlie regime of peasant pro¬ 
perties, as in that of slavery, the whole 
produce belongs to a single owner, and 
the distinction of rent, profits, and 
wages, does not exist. In all other 
respects, the two states of society are 
the extreme opposites of each other. 
The one is the state of greatest oppres¬ 
sion and degradation to the labouring 
class. The other is that in which they 
are the most uncontrolled arbiters of 
their own lot. 

The advantage, however, of small 
properties in land, is one of the most 
disputed questions in the range of poli¬ 
tical economy. On the Continent, 
though there are some dissentients 
from the prevailing opinion, the benefit 
of having a numerous proprietary po¬ 
pulation exists in the minds ot most 
people in the form of an axiom. But 
English authorities are either unaware 
of the judgment of Continental agricul¬ 
turists, or are content to put it aside, 
on the plea of their having no experi¬ 
ence of large properties in favourable 
circumstances : the advantage of large 
properties being only felt where there 
are also large farms; and as this, in 
arable districts, implies a greater accu¬ 
mulation of capital than usually exists 
on the Continent, the great Continental 
estates, except in the case of grazing 
farms, are mostly let out for cultivation 
in small portions. There is some truth 
in this; but the argument admits of 
being retorted ; for if the Continent 
knows little, by experience, of cultiva¬ 
tion on a large scale and by large capi¬ 
tal, the generality of English writers 
are no better acquainted practically 
with peasant proprietors, and have al¬ 
most always the most erroneous ideas 
of their social condition and mode of 
life. Yet the old traditions even of 
England are on the same side with the 
general opinion of the Continent. The 
“ yeomanry” who were vaunted as the 
glory of England while they existed, 


and have been so much mourned over 
since they disappeared, were either 
small proprietors or small farmers, and 
if they were mostly the last, the cha¬ 
racter they bore for sturdy indepen¬ 
dence is the more noticeable. There 
is a part of England, unfortunately a 
very small part, where peasant proprie¬ 
tors are still common; for such are the 
“ statesmen” of Cumberland and West¬ 
moreland, though they pay, I believe, 
generally if not universally, certain 
customary dues, which, being fixed, no 
more affect their character of proprie¬ 
tors than the land-tax does. There is 
but one voice, among those acquainted 
with the country, on the admirable ef¬ 
fects of this tenure of land in those 
counties. No other agricultural popu¬ 
lation in England could have furnished 
the originals of Wordsworth’s pea¬ 
santry.* 

* In Mr. Wordsworth’s little descriptive 
work on the scenery of the Lakes, he speaks 
of the upper part of the dales as having been 
for centuries “ a perfect republic of shep¬ 
herds and agriculturists, proprietors, for the 
most part, of the lands which they occupied 
and cultivated. The plough of each man 
was confined to the maintenance of his own 
family, or to the occasional accommodation 
of his neighbour. Two or three cows fur¬ 
nished each family with milk and cheese. 
The chapel was the only edifice that pre¬ 
sided over these dwellings, the supreme head 
of this pure commonwealth ; the members 
of which existed in the midst of a powerful 
empire, like an ideal society, or an organized 
community, whose constitution had been 
imposed and regulated by the mountains 
which protected it. Neither high-born 
nobleman, knight, nor esquire was here; 
but many of these humble sons of the hills 
had a consciousness that the land which 
they walked over and tilled had for more 
than five hundred years been possessed by 
men of their name and blood. . . . Corn 
was grown in these vales sufficient upon 
each estate to furnish bread for each family, 
no more. The storms and moisture of the 
climate induced them to sprinkle their up¬ 
land property with outhouses of native stone, 
as places of shelter for their sheep, where, 
in tempestuous weather, food was distributed 
to them. Every family spun from its own 
flock the wool with which it was clothed; a 



156 BOOK II. CHAPTEE VI. § 2. 


The general system, however, of 
English cultivation, affording no expe¬ 
rience to render the nature and opera¬ 
tion of peasant properties familiar, and 
Englishmen being in general profoundly 
ignorant of the agricultural economy of 
other countries, the very idea of pea¬ 
sant proprietors is strange to the Eng¬ 
lish mind, and does not easily find 
access to it. Even the forms of lan¬ 
guage stand in the way: the familiar 
designation for owners of land being 
“landlords,” a term to which “tenants” 
is always understood as a correlative. 
"When, at the time of the famine, the 
suggestion of peasant properties as a 
means of Irish improvement found its 
way into parliamentary and newspaper 
discussions, there were writers of pre¬ 
tension to whom the word “proprietor” 
was so far from conveying any distinct 
idea, that they mistook the small hold¬ 
ings of Irish cottier tenants for peasant 
properties. The subject being so little 
understood, I think it important, before 
entering into the theory of it, to do 
something towards showing how the 
case stands as to matter of fact; by 
exhibiting, at greater length than 
would otherwise be admissible, some of 
the testimony which exists respecting 
the state of cultivation, and the com¬ 
fort and happiness of the cultivators, in 
those countries and parts of countries, 
in which the greater part of the land 
has neither landlord nor farmer, other 
than the labourer who tills the soil. 

§ 2. I lay no stress on the condi¬ 
tion of North America, where, as is 
well known, the land, wherever free 
from the curse of slavery, is almost 
universally owned by the same person 
who holds the plough. A country 
combining the natural fertility of 
America with the knowledge and arts 

weaver was here and there found among 
them, and the rest of their wants was sup¬ 
plied by the produce of the yam, which they 
carded and spun in their own houses, and 
carried to market either under their arms, 
or more frequently on packhorses, a small 
train taking their way weekly down the 
valley, or over the mountains, to the most 
commodious town .”—A Description of the 
Scenery of the Lakes in the North of England, 
3rd edit, pp, 50 to 53 and 63 to 65. 


of modern Europe, is so peculiarly 
circumstanced, that scarcely anything, 
except insecurity of property or a ty¬ 
rannical government, could materially 
impair the prosperity of the industrious 
classes. I might, with Sismondi, in¬ 
sist more strongly on the case of an¬ 
cient Italy, jespecially Latium, that 
Campagna which then swarmed with 
inhabitants in the very regions which 
under a contrary regime have become 
uninhabitable from malaria. But I 
prefer taking the evidence of the same 
writer on things known to him by per¬ 
sonal observation. 

“It is especially Switzerland,” says 
M. de Sismondi, “which should be tra¬ 
versed and studied to judge of the 
happiness of peasant proprietors. It 
is from Switzerland we learn that 
agriculture practised by the very per¬ 
sons who enjoy its fruits, suffices to 
procure great comfort for a very nu¬ 
merous population ; a great indepen¬ 
dence of character, arising from inde¬ 
pendence of position; a great com¬ 
merce of consumption, the result of the 
easy circumstances of all the inhabi¬ 
tants, even in a country whose climate is 
rude, whose soil is but moderately fer¬ 
tile, and where late frosts and incon¬ 
stancy of seasons often blight the hopes 
of the cultivator. It is impossible to 
see without admiration those timber 
houses of the poorest peasant, so vast, 
so well closed in, so covered with 
carvings. In the interior, spacious 
corridors separate the different cham¬ 
bers of the numerous family; each 
chamber has but one bed, which is 
abundantly furnished with curtains, 
bedclothes, and the whitest linen; 
carefully kept furniture surrounds it; 
the wardrobes are filled with linen; the 
dairy is vast, well aired, and of exqui¬ 
site cleanness; under the same roof 
is a great provision of corn, salt meat, 
cheese and wood; in the cow-houses 
are the finest and most carefully tended 
cattle in Europe; the garden is planted 
with flowers, both men and women 
are cleanly and warmly clad, the wo¬ 
men preserve with pride their ancient 
costume; all carry in their faces the 
impress of health and strength. Let 
other nations boast of their opulence 




PEASANT PROPRIETORS. 


Switzerland may always point with 
pride to her peasants.”* 

The same eminent writer thus ex¬ 
presses his opinions on peasant pro¬ 
prietorship in general. 

“ Wherever we find peasant proprie¬ 
tors, we also find the comfort, security, 
confidence in the future, and indepen¬ 
dence, which assure at once happiness 
and virtue. The peasant who with 
his children does all the work of his 
little inheritance, who pays no rent to 
any one above him, nor wages to any 
one below, who regulates his produc¬ 
tion by his consumption, who cats his 
own corn, drinks his own wine, is 
clothed in his own hemp and wool, 
cares little for the prices of the mar¬ 
ket ; for he has little to sell and little 
to buy, and is never ruined by revul¬ 
sions of trade. Instead of fearing for 
the future, he sees it in the colours of 
hope ; for he employs every moment 
not required by the labours of the year, 
on something profitable to his chil¬ 
dren and to future generations. A 
few minutes’ work suffices him to 
plant the seed which in a hundred 
years will be a large tree, to dig the 
channel which will conduct to him a 
spring of fresh water, to improve by 
cares often repeated, but stolen from 
odd times, all the species of animals 
and vegetables which surround him. His 
little patrimony is a true savings bank, 
always ready to receive all his little 
gains and utilize all his moments of 
leisure. The ever-acting power of na¬ 
ture returns them a hundred-fold. The 
peasant has a lively sense of the hap¬ 
piness attached to the condition of a 
proprietor. Accordingly he is always 
eager to buy land at any price. He 
pays more for it than its value, more 
perhaps than it will bring him in ; but 
is he not right in estimating highly 
the advantage of having always an 
advantageous investment for his labour, 
without underbidding in the wages- 
market—of being always able to find 
bread, without the necessity of buying 
it at a scarcity price ? 

“ The peasant proprietor is of all 
cultivators the one who gets most from 
the soil, for he is the one who thinks 
* Studies in Political Economy. Essay III. 


157 

most of the future, and who has been 
most instructed by experience. He is 
also the one who employs the human 
powers to most advantage, because 
dividing his occupations among all the 
members of his family, he reserves 
some for every day of the year, so that 
nobody is ever out of work. Of all 
cultivators he is the happiest, and at 
the same time the land nowhere occu¬ 
pies, and feeds amply without becom¬ 
ing exhausted, so many inhabitants as 
where they are proprietors. Finally, 
of all cultivators the peasant proprietor 
is the one who gives most encourage¬ 
ment to commerce and manufactures, 
because he is the richest.”* 

This picture of unwearied assiduity, 
and what may be called affectionate 
interest in the land, is borne out in 
regard to the more intelligent Cantons 
of Switzerland by English observers. 
“ In walking anywhere in the neigh¬ 
bourhood of Zurich,” says Mr. Inglis, 
“ in looking to the right or to the left, 
one is struck with the extraordinary 
industry of the inhabitants; and if we 
learn that a proprietor here has a re¬ 
turn of ten per cent, we are inclined 
to say, ‘ he deserves it.’ I speak at 
present of country labour, though I 

* And in another work {New Principles of 
Political Economy , book iii. chap. 3) he says, 
“ When we traverse nearly the whole of 
Switzerland, and several provinces of Finance, 
Italy, and Germany, we need never ask, in 
looking at any piece of land, if it belongs to 
a peasant proprietor or to a farmer. The 
intelligent care, the enjoyments provided 
for the labourer, the adornment which the 
country has received from his hands, are 
clear indications of the former. It is true 
an oppressive government may destroy the 
comfort and brutify the intelligence which 
should be the result of property; taxation 
may abstract the best produce of the fields, 
the insolence of government officers may 
disturb the security of the peasant, the im¬ 
possibility of obtaining justice against a 
powerful neighbour may sow discourage¬ 
ment in his mind, and in the fine country 
which has been given back to the adminis¬ 
tration of the King of Sardinia, the pro¬ 
prietor, equally with the day-labourer, wears 
the livery of indigence.” He was hero 
speaking of Savoy, where the peasants were 
generally proprietors, and, according to au¬ 
thentic accounts, extremely miserable. But, 
as M. de Sismondi continues, “ it is in vain 
to observe only one of the rules of political 
economy; it cannot by itself suffice to pro¬ 
duce good; but at least it diminishes evil.” 




158 BOOK IT. CHAPTER VI. § 2. 


believe that in every kind of trade 
also, the people of Zurich are remark¬ 
able for their assiduity; but in the 
industry they show in the cultivation 
of their land I may safely say they are 
unrivalled. When I used to open my 
casement between four and five in the 
morning to look out upon the lake 
and the distant Alps, I saw the 
labourer in the fields ; and when I re¬ 
turned from an evening walk, long 
after sunset, as late, perhaps, as half¬ 
past eight, there was the labourer, 
mowing his grass, or tying up his 
vines. ... It is impossible to look at 
a field, a garden, a hedging, scarcely 
even a tree, a flower, or a vegetable, 
without perceiving proofs of the ex¬ 
treme care and industry that are be¬ 
stowed upon the cultivation of the soil. 
If, for example, a path leads through 
or by the side of a field of grain, the 
corn is not, as in England, permitted 
to hang over the path, exposed to be 
ulled or trodden down by every passer- 
y; it is everywhere bounded by a 
fence, stakes are placed at intervals of 
about a yard, and, about two or three 
feet from the ground, boughs of trees 
are passed longitudinally along. If 
you look into a field towards even¬ 
ing, where there are large beds of 
cauliflower or cabbage, you will find 
that every single plant has been 

watered. In the gardens, which around 
Zurich are extremely large, the most 
punctilious care is evinced in every 

production that grows. The vege¬ 
tables are planted with seemingly 

mathematical accuracy; not a single 
weed is to be seen, not a single 
stone. Plants are not earthed up as 
with us, but are planted in a small 
hollow, into each of which a little 
manure is put, and each plant is 
watered daily. Where seeds are sown, 
the earth directly above is broken into 
the finest powder; every shrub, every 
flower is tied to a stake, and where 
there is wall-fruit, a trellice is erected 
against the wall, to which the boughs 
are fastened, and there is not a single 
thing that has not its appropriate rest¬ 
ing placed’* 

* Switzerland, the South of France, and the 
Pyrenees in 1830. By H, D.luglis. Vol. i. ch. 2. 


Of one of the remote valleys of the 
High Alps the same writer thus ex¬ 
presses himself :*— 

“ In the whole of the Engadine the- 
land belongs to the peasantry, who, 
like the inhabitants of every other 
place where this state of things exist, 
vary greatly in the extent of their pos¬ 
sessions. . . . Generally speaking, an 
Engadine peasant lives entirely upon 
the produce of his land, with the ex¬ 
ception of the few articles of foreign 
growth required in his family, such as 
coffee, sugar, and wine. Flax is grown, 
prepared, spun, and woven, without 
ever leaving his house. He has also 
his own wool, which is converted into 
a blue coat without passing through 
the hands of either the dyer or the 
tailor. The country is incapable of 
greater cultivation than it has received. 
All has been done for it that industry 
and an extreme love of gain can de¬ 
vise. There is not a foot of waste 
land in the Engadine, the lowest part 
of which is not much lower than the 
top of Snowdon. Wherever grass will 
grow, there it is ; wherever a rock will 
bear a blade, verdure is seen upon it; 
wherever an ear of rye will ripen, 
there it is to be found. Barley and 
oats have also their appropriate spots; 
and wherever it is possible to ripen a 
little patch of wheat, the cultivation of 
it is attempted. In no country in 
Europe will be found so few poor as 
in the Engadine. In the village of 
Suss, which contains about six hun¬ 
dred inhabitants, there is not a single 
individual who has not wherewithal to 
live comfortably, not a single indi¬ 
vidual who is indebted to others for one 
morsel that he eats.” 

Notwithstanding the general prospe¬ 
rity of the Swiss peasantry, this total 
absence of pauperism, and (it may al¬ 
most be said) of poverty, cannot be 
predicated of the whole country; the 
largest and richest canton, that of 
Berne, being an example of the con¬ 
trary ; for although, in the parts of it 
which are occupied by peasant pro¬ 
prietors, their industry is as remark¬ 
able and their ease and comfort as con¬ 
spicuous as elsewhere, the canton is 
♦ Ibid. ch. S and 10. 



PEASANT PROPRIETORS. 


burthened with, a numerous pauper 
population, through the operation of 
the worst regulated system of poor-law 
administration in Europe, except that 
of England before the new Poor Law.* 
Nor is Switzerland in some other re¬ 
spects a favourable example of all that 
peasant properties might effect. There 
exists a series of statistical accounts 
of the Swiss cantons, drawn up mostly 
with great care and intelligence, con¬ 
taining detailed information, of tole¬ 
rably recent date, respecting the con¬ 
dition of the land and of the people. 
Prom these, the subdivision appears 
to be often so minute, that it can 
hardly be supposed not to be excessive : 
and the indebtedness of the proprietors 
in the flourishing canton of Zurich 
“ borders,’’as the writer expresses it, 
“on the incredible;” so that “only 
the intensest industry, frugality, tem¬ 
perance, and complete freedom of com¬ 
merce enable them to stand their 
ground.’ ’f Yet the general conclusion 
deducible from these books is that since 
the beginning of the century, and con¬ 
currently with the subdivision of many 
great estates whieh belonged to nobles 
or to the cantonal governments, there 
has been a striking and rapid improve¬ 
ment in almost every department of 
agriculture, as well as in the houses, 
the habits, and the food of the people. 
The writer of the account of Thiirgau 
goes so far as to say, that since the 

* There have been considerable changes 
In the Poor Law administration and legisla¬ 
tion of the Canton of Berne since the sen¬ 
tence in the text was written. But I am 
not sufficiently acquainted with the nature 
ando peration of these changes, to speak more 
particularly of them here. 

t Historical, Geographical, and Statistical 
Picture of Switzerland, Part I. Canton of 
Zurich. By Gerold Meyer Von Knonau, 
1834, pp. 80-1. There are villages in Zurich, 
he adds, in which there is not a single pro¬ 
perty unmortgaged. It does not, however, 
follow that each individual proprietor is 
deeply involved because the aggregate mass 
of incumbrances is large. In the Canton of 
Schaff'hausen, for instance, it is stated that 
the landed properties are almost all mort¬ 
gaged, but rarely for more than one-half 
their registered value (Part XII. Canton 
of Schaffhausen, by Edward Im-Thurn, 1840, 
p. 52), and the mortgages are often for the 
improvement and enlargement of the estate. 
(Part XVII. Canton of Thiirgau, by J. A. 
Pupikofer, 1837, p. 209.) 


159 

subdivision of tl.3 feudal estates into 
peasant properties, it is not uncommon 
for a third or a fourth part of an estate 
to produce as much grain, and support 
as many head of cattlG, as the whole 
estate did before.* 

§ 3. One of the countries in which 
peasant proprietors are of oldest date, 
and most numerous in proportion to 
the population, is Norway. Of the 
social and economical condition of that 
country an interesting account has 
been given by Mr. Laing. His testi¬ 
mony in favour of small landed pro¬ 
perties both there and elsewhere, is 
given with great decision. I shall 
quote a few passages. 

“ If small proprietors are not good 
farmers, it is not from the same cause 
here which we are told makes them so 
in Scotland—indolence and want of ex¬ 
ertion. The extent to which irrigation 
is carried on in these glens and valleys 
shows a spirit of exertion and co¬ 
operation ” (I request particular atten¬ 
tion to this point), “ to which the latter 
can show nothing similar. Hay being 
the principal winter support of live 
stock, and both it and corn, as well as 
potatoes, liable, from the shallow soil 
and powerful reflection of sunshine 
from the rocks, to be burnt and withered 
up, the greatest exertions are made to 
bring water from the head of each glen, 
along such a level as will give the 
command of it to each farmer at 
the head of his fields. This is done by 
leading it in wooden troughs (the half 
of a tree roughly scooped) from the 
highest perennial stream among the 
hills, through woods, across ravines, 
along the rocky, often perpendicular, 
sides of the glens, and from this main 
trough giving a lateral one to each 
farmer in passing the head of his farm. 
He distributes this supply by moveable 
troughs among his fields ; and at this 
season waters each rig successively 
with scoops like those used by bleachers 
in watering cloth, laying his trough 
between every two rigs. One would 
not believe, without seeing it, how 
very large an extent of land is tra¬ 
versed expeditiously by these artificial 
* Thiirgau , p. 72. 



BOOK II. CHAPTER VI. § 3. 


showers. The extent of the main 
troughs is very great. In one glen I 
walked ten miles, and found it troughed 
on both sides : on one, the chain is con¬ 
tinued down the main valley for forty 
miles.* Those may be bad farmers 
who do such things; but they are not 
indolent, nor ignorant of the principle 
of working in concert, and keeping up 
establishments for common benefit. 
They are undoubtedly, in these respects, 
far in advance of any community of 
cottars in our Highland glens. They 
feel as proprietors, who receive the ad¬ 
vantage of their own exertions. The 
excellent state of the roads and bridges 
is another proof that the country is in¬ 
habited by people who have a common 
interest to keep them under repair. 
There are no tolls.”f 

On the effects of peasant proprietor¬ 
ship on the Continent generally, the 
same writer expresses himself as fol- 
lows.f 

“ If we listen to the large farmer, the 
scientific agriculturist, the ” [English] 
“ political economist, good farming 
must perish with large farms ; the 
very idea that good farming can exist, 
unless on large farms cultivated with 
great capital, they hold to be absurd. 
Draining, manuring, economical ar¬ 
rangement, cleaning the land, regular 

* Eeichensperger {The Land Question) 
quoted by Mr. Kay ( Social Condition and 
Education of the People in England and 
Europe ,) observes, “that the parts of Europe 
where the most extensive and costly plans 
for watering the meadows and lands have 
been carried out in the greatest perfection, 
are those where the lands are very much 
subdivided, and are in the hands of small 
proprietors. He instances the plain round 
Valencia, several of the southern depart¬ 
ments of France, particularly those of Vau- 
cluse and Bouches du Rhone, Lombardy, 
Tuscany, the districts of Sienna, Lucca, and 
Bergamo, Piedmont, many parts of Germany, 
&c., in all which parts of Europe the land is 
very much subdivided among small proprie¬ 
tors. In all these parts great and expensive 
systems and plans of general irrigation have 
been carried out,and are nowbeing supported, 
by the small proprietors themselves; thus 
showing how they are able to accomplish, 
by means of combination, work requiring 
the expenditure of great quantities of capi¬ 
tal.” Kay, i. 126. 

t Laing, Journal of a Residence in 1Yoricay, 
jpp. 36, 37. 

t Rotes of a Traveller, pp. 299 et seqq. 


rotations, valuable stock and imple¬ 
ments, all belong exclusively to large 
farms, worked by large capital, and by 
hired labour. This reads very well; 
but if we raise our eyes from their 
books to their fields, and coolly compare 
what we see in the best districts 
farmed in large farms, with what we 
see in the best districts farmed in 
small farms, we see, and there is no 
blinking the fact, better crops on the 
ground in Flanders, East Friesland, 
Holstein, in short, on the whole line of 
the arable land of equal quality on the 
Continent, from the Sound to Calais, 
than we see on the line of British coast 
opposite to this line, and in the same 
latitudes, from the Frith of Forth all 
round to Dover. Minute labour on 
small portions of arable ground gives 
evidently, in equal soils and climate, a 
superior productiveness, where these 
small portions belong in property, as 
in Flanders, Holland, Friesland, and 
Ditmarseh in Holstein, to the farmer. 
It is not pretended by our agricultural 
writers, that our large farmers, even in 
Berwickshire, Roxburghshire, or the 
Lothians, approach to the garden-like 
cultivation, attention to manures, drain¬ 
age, and clean state of the land, or 
in productiveness from a small space of 
soil not originally rich, which distin¬ 
guish the small farmers of Flanders, or 
their system. In the best farmed parish 
in Scotland or England, more land is 
wasted in the corners and borders of 
the fields of large farms, in the roads 
through them, unnecessarily wide be¬ 
cause they are bad, and bad because 
they are wide, in neglected commons, 
waste spots, useless belts and clumps 
of sorry trees, and such unproductive 
areas, than would maintain the poor 
of the parish, if they were all laid to¬ 
gether and cultivated. But large 
capital applied to farming is of course 
only applied to the very best of the soils 
of a country. It cannot touch the small 
unproductive spots which require more 
time and labour to fertilize them than 
is consistent with a quick return of 
capital. But although hired time and 
labour cannot be applied beneficially 
to such cultivation, the owner’s own time 
and labour may. He is working for 




PEASANT PROPRIETORS. 


no higher terms at first from his land 
than a bare living. But in the course 
of generations fertility and value are 
produced; a better living, and even 
very improved processes of husbandry, 
are attained. Furrow draining, stall 
feeding all summer, liquid manures, are 
universal in the husbandry of the small 
farms of Flanders, Lombardy, Switzer¬ 
land. Our most improving districts 
under large farms are but beginning to 
adopt them. Dairy husbandry even, 
and the manufacture of the largest 
cheeses by the co-operation of many 
small farmers,* the mutual assurance 
of property against fire and hail-storms, 
by the co-operation of small farmers— 
the most scientific and expensive of 
all agricultural operations in modern 
times, the manufacture of beet-root 
sugar—the supply of the European 
markets with flax and hemp, by the hus¬ 
bandry of small farmers—the abund¬ 
ance of legumes, fruits, poultry, in the 
usual diet even of the lowest classes 
abroad, and the total want of such 
variety at the tables even of our middle 
classes, and this variety and abundance 

* The manner in which the Swiss peasants 
combine to carry on cheesemaking by their 
united capital desei’ves to be noted. “ Each 
parish in Switzerland hires a man, generally 
from the district of Gruy&re in the canton of 
Ereyburg, to take care of the herd, and make 
the cheese. One cheeseman, one pressman 
or assistant, and one cowherd, are considered 
necessary for every forty cows. The owners 
of the cows get credit each of them, in a book 
daily, for the quantity of milk given by each 
cow. The cheeseman and his assistants milk 
the cows, put the milk all together, and make 
cheese of it, and at the end of the season each 
owner receives the weight of cheese propor¬ 
tionable to the quantity of milk his cows have 
delivered. By this co-opeiative plan, instead 
of the small-sized unmai’ketable cheeses only, 
which each could produce out of his three or 
four cows’ milk, he has the same weight in 
large marketable cheese superior in quality, 
because made by people who attend to no 
other business. The cheeseman and his as¬ 
sistants are paid so much per head of the 
cow s, in money or in cheese, or sometimes 
they hire the cows, and pay the owners in 
money or cheese .”—Notes of a Traveller, p. 
351. A similar system exists in the French 
Jura. See, for full details, Lavergne, Rural 
Economy of France, 2nd ed., pp. 139 et seqq. 
One of the most remarkable points in this 
interesting case of combination of labour, is 
the confidence which it supposes, and which 
experience must justify, in the integi’ity of 
the persons employed. 
r.E. 


161 

essentially connected with the hus¬ 
bandry of small farmers—all these are 
features in the occupation of a country 
by smallproprietor-iarmers, which must 
make the inquirer pause before he 
admits the dogma of our land doctors 
at home, that large farms worked by 
hired labour and great capital can 
alone bring out the greatest produc¬ 
tiveness of the soil and furnish the 
greatest supply of the necessaries and 
conveniences of life to the inhabitants 
of a country.” 

§ 4. Among the many flourishing 
regions of Germany in which peasant 
properties prevail, I select the Palati¬ 
nate, for the advantage of quoting, 
from an English source, the results of 
recent personal observation of its agri¬ 
culture and its people. Mr. Howitt, 
a writer whose habit it is to see all 
English objects and English socialities 
on their brightest side, and who, in 
treating of the Rhenish peasantry, 
certainly does not underrate the rude¬ 
ness of their implements, and the in¬ 
feriority of their ploughing, neverthe¬ 
less shows that under the invigorating’ 
influence of the feelings of proprietor¬ 
ship, they make up for the imperfec¬ 
tions of their apparatus by the inten¬ 
sity of their application. “ The peasant 
harrows and clears his land till it is in 
the nicest order, and it is admirable to 
see the crops which ho obtains.”* 
“The peasantsf are the great and 
ever-present objects of country life. 
They are the great population of the 
country, because they themselves are 
the possessors. This country is, in 
fact, for the most part, in the hands of 
the people. It is parcelled out among 

the multitude.The peasants are 

not, as with us, for the most part, 
totally cut off from property in the soil 
they cultivate, totally dependent on 
the labour afforded by others—they 
are themselves the proprietors. It is, 
perhaps, from this cause that they are 
probably the most industrious pea¬ 
santry in the world. They labour 
busily, early and late, because they 

* Rural and Domestic Life of Germany, 
p. 27. 

t Ibid. p. 40. 


M 






BOOK II. CHAPTER VI. § 3. 


162 

feel that they are labouring for them¬ 
selves.The German peasants 

work hard, hut they have no actual 
want. Every man has his house, his 
orchard, his roadside trees, commonly 
so heavy with fruit, that he is obliged 
to prop and secure them all ways, or 
they would be torn to pieces. He has 
his corn-plot, his plot for mangel- 
wurzel, for hemp, and so on. He is 
his own master; and he, and every 
member of his family, have the strongest 
motives to labour. You see the effect 
of this in that unremitting diligence 
which is beyond that of the whole 
world besides, and his economy, which 
is still greater. The Germans, indeed, 
are not so active and lively as the 
English. You never see them in a 
bustle, or as though they meant to 
knock off a vast deal in a little time. 
. . . They are, on the contrary, slow, 
but for ever doing. They plod on from 
day to day, and year to year—the 
most patient, untirable, and persever¬ 
ing of animals. The English peasant 
is so cut off from the idea of property, 
that he comes habitually to look upon 
it as a thing from which he is warned 
by the laws of the large proprietors, 
and becomes, in consequence, spirit¬ 
less, purposeless.The German 

bauer, on the contrary, looks on the 
country as made for him and his 
fellow-men. He feels himself a man; 
he has a stake in the country, as good 
as that of the bulk of his neighbours; 
no man can threaten him with ejec¬ 
tion, or the workhouse, so long as he 
is active and economical. He walks, 
therefore, with a bold step; he looks 
you in the face with the air of a free 
man, but of a respectful one.” 

Of their industry, the same writer 
thus further speaks : “There is not an 
hour of the year in which they do not 
find unceasing occupation. In the 
depth of winter, when the weather 
permits them by any means to get out 
of doors, they are always finding some¬ 
thing to do. They carry out their 
manure to their lands while the frost 
is in them. If there is not frost, they 
are busy cleaning ditches and felling 
old fruit trees, or such as do not bear 
well. &ach of them as are too poor to 


lay in a sufficient stock of wood, find 
plenty of work in ascending into the 
mountainous woods, and bringing 
thence fuel. It ■would astonish the 
English common people to see the in¬ 
tense labour with which the Germans 
earn their firewood. In the depth of 
frost and snow, go into any of their 
hills and woods, and there you find 
them hacking up stumps, cutting off 
branches, and gathering, by all means 
which the official wood-police will 
allow, boughs, stakes, and pieces of 
wood, which they convey home with 
the most incredible toil and patience.”* 
After a description of their careful and 
laborious vineyard culture, he con¬ 
tinues,+ “ In England, with its great 
quantity of grass lands, and its large 
farms, so soon as the grain is in, and 
the fields are shut up for hay grass, the 
country seems in a comparative state 
of rest and quiet. But here they are 
everywhere, and for ever, hoeing and 
mowing, planting and cutting, weed¬ 
ing and gathering. They have a 
succession of crops like a market- 
gardener. They have their carrots, 
poppies, hemp, flax, saintfoin, lucerne, 
rape, colewort, cabbage, rotabaga, 
black turnips, Swedish and white tur¬ 
nips, teazles, Jerusalem artichokes, 
mangel-wurzel, parsnips, kidney-beans, 
field-beans and peas, vetches, Indian 
corn, buckwheat, madder for the manu¬ 
facturer, potatoes, their great crop of 
tobacco, millet—all, or the greater part, 
under the family management, in their 
own family allotments. They have 
had these things first to sov r , many of 
them to transplant, to hoe, to weed, to 
clear off insects, to top ; many of them 
to mow and gather in successive crops. 
They have their water-meadows, of 
which kind almost all their meadows 
are, to flood, to mow, and reflood; 
watercourses to reopen and to make 
anew; their early fruits to gather, to 
bring to market with their green crops 
of vegetables; their cattle, sheep, 
calves, foals, most of them prisoners, 
and poultry to look after ; their vines, 
as they shoot rampantly in the sum- 

* Rural and Domestic Life of Germany• 
p. 44. 

t Ibid. p. 50. 






PEASANT PROPRIETORS. 163 


mer heat, to prune, and thin out the 
leaves when they are too thick: and 
any one may imagine what a scene of 
incessant labour it is.” 

This interesting sketch, to the 
general truth of which any observant 
traveller in that highly cultivated and 
populous region can hear witness, 
accords with the more elaborate de¬ 
lineation by a distinguished inhabitant, 
Professor Rau, in his little treatise 
41 On the Agriculture of the Palati¬ 
nate.”* Dr. Rau bears testimony not 
only to the industry, but to the skill 
and intelligence of the peasantry; 
their judicious employment of manures, 
and excellent rotation of crops; the 
progressive improvement of their agri¬ 
culture for generations past, and the 
spirit of further improvement which is 
still active. “ The indefatigableness 
of the country people, who may be seen 
in activity all the day and all the year, 
and are never idle, because they make 
a good distribution of their labours, 
and find for every interval of time a 
suitable occupation, is as well known 
as their zeal is praiseworthy in turning 
to use every circumstance which pre¬ 
sents itself, in seizing upon every use¬ 
ful novelty which offers, and even in 
searching out new and advantageous 
methods. One easily perceives that 
the peasant of this district has reflected 
much on his occupation : he can give 
reasons for his modes of proceeding, 
even if those reasons are not always 
tenable ; he is as exact an observer of 
proportions as it is possible to be from 
memory, without the aid of figures : he 
attends to such general signs of the 
times as appear to augur him either 
benefit or harm.” j" 

The experience of all other parts of 
Germany is similar. “In Saxony,” 
says Mr. Kay, “it is a notorious fact, 
that during the last thirty years, and 
since the peasants became the pro¬ 
prietors of the land, there has been a 
rapid and continual improvement in the 
condition of the houses, in the manner 
of living, in the di’ess of the peasants, 

* On the Agriculture of the Palatinate, and 
•particularly in the territory of Heidelberg. 
By Dr. Karl Heinrich Rau. Heidelberg, 
1830. 


and particularly in the culture of the 
land. I have twice walked through that 
part of Saxony called Saxon Switzer¬ 
land, in company with a German guide, 
and on purpose to see the state of the 
villages and of the farming, and I can 
safely challenge contradiction when I 
affirm that there is no farming in all 
Europe superior to the laboriously care¬ 
ful cultivation of the valleys of that 
part of Saxony. There, as in the can¬ 
tons of Berne, Vaud, and Zurich, and 
in the Rhine provinces, the farms are 
singularly flourishing. They are kept 
in beautiful condition, and are always 
neat and well managed. The ground 
is cleared as if it were a garden. No 
hedges or brushwood encumber it. 
Scarcely a rush or thistle or a bit of 
rank grass is to be seen. The meadows 
are well watered every spring with 
liquid manure, saved from the drain¬ 
ings of the farm yards. The grass is 
so free from weeds that the Saxon 
meadows reminded me more of English 
lawns than of anything else I had seen. 
The peasants endeavour to outstrip one 
another in the quantity and quality of 
the produce, in the preparation of the 
ground, and in the general cultivation 
of their respective portions. All the 
little proprietors are eager to find out 
how to farm so as to produce the greatest 
results ; they diligently seek after im¬ 
provements ; they send their children 
to the agricultural schools in order to 
fit them to assist their fathers; and 
each proprietor soon adopts a new im¬ 
provement introduced by any of his 
neighbours.”* If this be not over¬ 
stated, it denotes a state of intelligence 
very different not only from that of 
English labourers but of English 
farmers. 

Mr. Kay’s book, published in 1850, 
contains a mass of evidence gathered 
from observation and inquiries in many 
different parts of Europe, together with 
attestations from many distinguished 
writers, to the beneficial effects of pea- 

* The Social Condition and Education of 
the People in England and Europe; showing 
the Results of the Primary Schools, and of 
the division of Landed Property in Foreign 
Countries. By Joseph Kay, Esq., M.A. Bai*- 
rister-at-Law, and late Travelling Bachelor 
of the University of Cambridge. Vol, i. pp. 
138-40. 



164 BOOK II. CHAPTER VI. § 5. 


sant properties. Among tlie testimonies 
which he cites respecting their effect 
on agriculture, I select the following. 

“ Ren h msperger, himself an inhabi¬ 
tant of that part of Prussia where the land 
is the most subdivided, has published 
a long and very elaborate work to show 
the admirable consequences of a system 
of freeholds in land. He expresses a 
very decided opinion that not only are 
the gross products of any given number 
of acres held and cultivated by small 
or peasant proprietors, greater than the 
gross products of an equal number of 
acres held by a few great proprietors, 
and cultivated by tenant farmers, but 
that the net products of the former, 
after deducting all the expenses of 
cultivation, are also greater than the 
net products of the latter. . . . He 
mentions one fact which seems to prove 
that the fertility of the land in countries 
where the properties are small, must he 
rapidly increasing. He says that the 
price of the land which is divided into 
small properties in the Prussian Rhine 
provinces, is much higher, and has been 
rising much more rapidly, than the 
price of land on the great estates. He 
and Professor Eau both say that this 
rise in the price of the small estates 
would have ruined the more recent 
purchasers, unless the productiveness 
of the small estates had increased in 
at least an equal proportion; and as the 
small proprietors have been gradually 
becoming more and more 'prosperous 
notwithstanding the increasing prices 
they have paid for their land, he argues, 
with apparent justness, that this would 
seem to show that not only the gross 
profits of the small estates, but the net 
profits also, have been gradually in¬ 
creasing, and that the net profits per 
acre, of land, when farmed by small 
proprietors, are greater than the net 
profits per acre of land farmed by a 
great proprietor. He says, with seem¬ 
ing truth, that the increasing price of 
land in the small estates cannot be the 
mere eft’ect of competition, or it would 
have diminished the profits and the 
prosperity of the small proprietors, and 
that this result has not followed the 
rise. 

“ Albrecht Thaer, another celebrated 


German writer on the different systems 
of agriculture, in one of his later works 
(Principles of Eational Agriculture) 
•expresses his decided conviction, that 
the net produce of land is greater when 
farmed by small proprietors than when 
farmed by great proprietors or their 
tenants. . . . This opinion of Thaer is 
all the more remarkable, as, during the- 
early part of his life, he was very 
strongly in favour of the English system 
of great estates and great farms.” 

Mr. Kay adds, from his own observa¬ 
tion, “ The peasant farming of Prussia, 
Saxony, Holland, and Switzerland is 
the most perfect and economical farm¬ 
ing I have ever witnessed in any’ 
country.”* 

§ 5. But the most decisive example- 
in opposition to the English prejudice 
against cultivation by peasant pro¬ 
prietors, is the case of Belgium. The 
soil is originally one of the worst in 
Europe. “ The provinces,” says Mr. 
M'CulloclqT “ of West and East 
Flanders, and Plainault, form a far- 
stretching plain, of which the luxuriant' 
vegetation indicates the indefatigable 
care and labour bestowed upon its cul¬ 
tivation ; for the natural soil consists 
almost wholly of barren sand, and its 
great fertility is entirely the result of 
very skilful management and judicious 
application of various manures.’ ’ There 
exists a carefully prepared and compre¬ 
hensive treatise on Flemish Husbandry, 
in the Farmer’s Series of the Society 
for the Diffusion of Useful Knowledge. 
The writer observes ,$ that the Flemish 
agriculturists “seem to want nothing 
but a space to work upon : whatever be 
the quality or texture of the soil, in 
time they will make it produce some¬ 
thing. The sand in the Campine can 
he compared to nothing but the sands 
on the sea-shore, which they probably 
were originally. It is highly interest¬ 
ing to follow step by step the progress 
of improvement. Here you see a cot¬ 
tage and rude cow-shed erected on a 
spot of the most unpromising aspect. 
The loose white sand blown into irre- 

* Kay, i. 116-8. 

t Geographical Dictionary, art, “ Belgium,’* 
j Pp. 11-14. 



PEASANT PROPRIETORS. 1G5 


gular mounds is only kept together by 
the roots of the heath: a small spot 
only is levelled and surrounded by a 
ditch: part of this is covered with 
young broom, part is planted with po¬ 
tatoes, and perhaps a small patch of 
diminutive clover may show itselfbut 
manures, both solid and liquid, are col¬ 
lecting, “ and this is the nucleus from 
which, in a few years, a little farm will 
spread around. . . .If there is no 
manure at hand, the only thing that 
can be sown, on pure sand, at first, is 
•broom : this grows in the most barren 
soils; in three years it is fit to cut, and 
produces some return in fagots for the 
bakers and brickmakers. The leaves 
which have fallen have somewhat en¬ 
riched the soil, and the fibres of the 
roots have given a certain degree of 
compactness. It may now be ploughed 
and sown with buckwheat, or even with 
rye without manure. By the time this 
is reaped, some manure may have been 
collected, and a regular course of crop¬ 
ping may begin. As soon as clover and 
potatoes enable the farmer to keep cows 
and make manure, the improvement 
goes on rapidly; in a few years the soil 
undergoes a complete change: it be¬ 
comes mellow and retentive ot moisture, 
and enriched by the vegetable matter 
afforded by the decomposition of the 
roots of clover and other plants. . . . 
After the land has been gradually- 
brought into a good state, and is culti¬ 
vated in a regular manner, there ap¬ 
pears much less difference between the 
soils which have been originally good, 
and those which have been made so 
by labour and industry. At least the 
crops in both appear more nearly alike 
at harvest, than is the case in soils of 
different qualities in other countries. 
This is a great proof of the excellency 
of the Flemish system; for it shows 
that the land is in a constant state of 
improvement, and that the deficiency 
of the soil is compensated by greater 
attention to tillage and manuring, 

• especially the latter.” 

The people who labour thus intensely, 
because labouring for themselves, have 
practised for centuries those principles 
of rotation of crops and economy of 
manures, which in England are counted 


among modern discoveries: and even 
now the superiority of their agriculture, 
as a whole, to that of England, is ad¬ 
mitted by competent judges. “ The 
cultivation of a poor light soil, or a 
moderate soil,” says the writer last 
quoted,* “ is generally superior in 
Flanders to that of the most improved 
farms of the same kind in Britain. We 
surpass the Flemish farmer greatly in 
capital, in varied implements of tillage, 
in the choice and breeding of cattle and 
sheep,” (though, according to the same 
authority,f they are much “ before us 
in the feeding of their cows,”) “ and 
the British farmer is in general a man 
of superior education to the Flemish 
peasant. But in the minute attention 
to the qualities of the soil, in the ma¬ 
nagement and application of manures 
of different kinds, in the judicious suc¬ 
cession of crops, and especially in the 
economy of land, so that every part of 
it shall be in a constant state of pro¬ 
duction, we have still something to 
learn from the Flemings,” and not from 
an instructed and enterprising Fleming 
here and there, but from the general 
practice. 

Much of the most highly cultivated 
part of the country consists of peasant 
properties, managed by the proprietors, 
always either wholly or partly by spade 
industry4 “ When the land is culti¬ 
vated entirely by the spade, and no 
horses are kept, a cow is kept for every 
three acres of land, and entirely fed on 
artificial grasses and roots. This mode 
of cultivation is principally adopted in 
the Waes district, where properties are 
very small. All the labour is done by 
the different members of the family;” 
children soon beginning ‘‘to assist in 
various minute operations, according to 
their age and strength, such as weed¬ 
ing, hoeing, feeding the cows. If they 
can raise rye and wheat enough to 
make their bread, and potatoes, tur¬ 
nips, carrots, and clover, for the cows, 
they do well; and the produce of the 
sale of their rape-seed, their flax, their 
hemp, and their butter, after deducting 
the expense of manure purchased, which 

* Flemish Husbandry, p. 3. 

t Ibid. p. 13. 

£ ibid., pp. 73 et seq. 




166 BOOK II. CHAPTER VI. S 5. 


is always considerable, gives them a 
very good profit. Suppose the whole 
extent of tbe land to be six acres, which 
is not an uncommon occupation, and 
which one man can manage;” then 
(after describing the cultivation), “ if 
a man with his wife and three young 
children are considered as equal to 
three and a half grown up men, the fa¬ 
mily will require thirty-nine bushels of 
grain, forty-nine bushels of potatoes, a 
fat hog, and the butter and milk of one 
cow: an acre and a half of land will 
produce the grain and potatoes, and 
allow some corn to finish the fattening 
of the hog, which has the extra butter¬ 
milk : another acre in clover, carrots, 
and potatoes, together with the stubble 
turnips, will more than feed the cow; 
consequently two and a half acres of 
land is sufficient to feed this family, 
and the produce of the other three and 
a half may be sold to pay the rent or 
the interest of purchase-money, wear 
and tear of implements, extra manure, 
and clothes for the family. But these 
acres arc the most profitable on the 
farm, for the hemp, flax, and colza are 
included; and by having another acre 
in clover and roots, a second cow can 
be kept, and its produce sold. We 
have, therefore, a solution of the prob¬ 
lem, how a family can live and thrive 
on six acres of moderate land.” After 
showing by calculation that this extent 
of land can be cultivated in the most 
perfect manner by the family without 
any aid from hired labour, the writer 
continues, “ In a farm of ten acres en¬ 
tirely cultivated by the spade, the addi¬ 
tion of a man and a woman to the 
members of the family will render all 
the operations more easy; and with a 
horse and cart to carry out the manure, 
and bring home the produce, and occa¬ 
sionally draw the harrows, fif teen acres 
may be very well cultivated. . . . Thus 
it will be seen,’) (this is the result of 
some pages of details and calculations,*) 
“ that by spade husbandry, an industri¬ 
ous man with a small capital, occupying 
only fifteen acres of good light land, 
may not only live and bring up a fa¬ 
mily, paying a good rent, but may accu¬ 
mulate a considerable sum in the course 

* Flemish Husbandry, p. 81. 


of his life.” But the indefatigable in¬ 
dustry by which he accomplishes this, 
and of -which so large a portion is ex¬ 
pended not in the mere cultivation, but 
in the improvement, for a distant re¬ 
turn, of the soil itself—has that indus¬ 
try no connexion with not paying rent? 
Could it exist, without presupposing, 
at least, a virtually permanent tenure ? 

As to their mode of living, “the 
Flemish farmers and labourers live 
much more economically than the same 
class in England: they seldom eat 
meat, except on Sundays and in har¬ 
vest : buttermilk and potatoes with 
brown bread is their daily food.” It 
is on this kind of evidence that English 
travellers, as they hurry through Eu¬ 
rope, pronounce the peasantry of every 
Continental country poor and miserable, 
its agricultural and social system a 
failure, and the English the only regime 
under which labourers are well off. It 
is, truly enough, the only regime under • 
which labourers, whether well off or 
not, never attempt to be better. So 
little are English labourers accustomed 
to consider it possible that a labourer 
should not spend all he earns, that they 
habitually mistake the signs of eco¬ 
nomy for those of poverty. Observe 
the true interpretation of the pheno¬ 
mena. 

“ Accordingly they are gradually 
acquiring capital , and their great am¬ 
bition is to have land of their own. 
They eagerly seize every opportunity 
of purchasing a small farm, and the 
price is so raised by competition, that 
land pays little more than two per cent 
interest for the purchase money. Large 
properties gradually disappear, and are 
divided into small portions, which sell 
at a high rate. But the wealth and 
industry of the population is continually 
increasing, being rather diffused through 
the masses than accumulated in indi¬ 
viduals.” 

With facts like these, known and 
accessible, it is not a little surprising 
to find the case of Flanders referred to 
not in recommendation of peasant pro¬ 
perties, but as a warning against them; 
on no better ground than a presumptive 
excess of population, inferred from the 
distress which existed among the pea- 




PEASANT PROPRIETORS. 1G7 


santry of Brabant and East Flanders 
in the disastrous year 1846-47. The 
evidence which I have cited from a 
writer conversant with the subject, and 
having no economical theory to sup¬ 
port, shows that the distress, whatever 
may have been its severity, arose from 
no insufficiency in these little properties 
to supply abundantly, in any ordinary 
circumstances, the wants of all whom 
they have to maintain. It arose from 
the essential condition to which those 
are subject who employ land of their 
own in growing their own food, namely, 
that the vicissitudes of the seasons 
must be borne by themselves, and can¬ 
not, as in the case of large farmers, be 
shifted from them to the consumer. 
When we remember the season of 1846, 
a partial failure of all kinds of grain, 
and an almost total one of the potato, 
it is no wonder that in so unusual a 
calamity the produce of six acres, half 
of them sown with flax, hemp, or oil 
seeds, should fall short of a year’s pro¬ 
vision for a family. But we are not to 
contrast the distressed Flemish peasant 
with an English capitalist who farms 
several hundred acres of land. If the 
peasant were an Englishman, he would 
not be that capitalist, but a day-la¬ 
bourer under a capitalist. And is there 
no distress, in times of dearth, among 
day-labourers ? Was there none, that 
year, in countries where small proprie¬ 
tors and small farmers are unknown ? 
I am aware of no reason for believing 
that the distress was greater in Bel¬ 
gium, than corresponds to the propor¬ 
tional extent of the failure of crops 
compared with other countries.* 

§ 6. The evidence of the beneficial 
operation of peasant properties in the 
Channel Islands is of so decisive a cha¬ 
racter, that I cannot help adding to 
the numerous citations already made, 

* As much of the distress latelycomplained 
of in Belgium, as partakes in any degree of a 
permanent character, appears to be almost 
confined to the portion of the population 
■who carry on manufacturing labour, either 
by itself or in conjunction with agricultural; 
and to be occasioned by a diminished demand 
for Belgic manufactures. 

To the preceding testimonies respecting 
Germany, Switzerland, and Belgium, may 


part of a description of the economical 
condition of those islands, by a writer 
who combines personal observation 
with an attentive study of the informa¬ 
tion afforded by others. Mr. William 
Thornton, in his “ Plea for Peasant 
Proprietors,” a book which by the ex¬ 
cellence both of its materials and of its 
execution, deserves to be regarded as 
the standard work on that side of the 
question,-speaks of the island of Guern¬ 
sey in the following terms: “Not even 
in England is nearly so large a quan¬ 
tity of produce sent to market from a 
tract of such limited extent. This of 
itself might prove that the cultivators 
must be far removed above poverty, for 
being absolute owners of all the pro¬ 
duce raised by them, they of course sell 
only what they do not themselves re¬ 
quire. But the satisfactoriness of their 
condition is apparent to every observer. 
‘The happiest community,’ says Mr. 
Hill, ‘ which it has ever been my lot 
to fall in with, is to be found in this 
little island of Guernsey.’ ‘ No matter,’ 
says Sir George Head, ‘ to what point 
the traveller may choose to bend his 
way, comfort everywhere prevails.’ 
What most surprises the English vi¬ 
sitor in his first walk or drive beyond 
the bounds of St. Peter’s Port, is the 
appearance of the habitations with 
which the landscape is thickly studded. 
Many of them are such as in his own 
country would belong to persons of 
middle rank; but he is puzzled to guess 
what sort of people live in the others, 
which, though in general not large 
enough for farmers, are almost invari¬ 
ably much too good in every respect for 

day labourers.Literally, in the 

whole island, with the exception of a 
few fishermen’s huts, there is not one 
so mean as to be likened to the ordinary 
habitation of an English farm labourer. 
.‘Look,’ says a late Bailiff of 

be added the following from Niebuhr, re 
specting the Roman Campagna. In a letter 
from Tivoli, he says, “ Wherever you find 
hereditary farmers, or small proprietors, 
there you also find industry and honesty. I 
believe that a man who would employ a large 
fortune in establishing small freeholds might 
put an end to robbery in the mountain 
districts .”—Life and Letters of Niebuhr, vol. 
ii. p. 149. 






168 BOOK II. CHAPTER VI. 8 7. 


Guernsey, Air. De L’lsle Brock, ‘at 
the hovels of the English, and compare 
them with the cottages of our pea¬ 
santry.’ .... Beggars are utterly un¬ 
known.Pauperism, able-bodied 

pauperism at least, is nearly as rare as 
mendicancy. The Savings Banks ac¬ 
counts also hear witness to the general 
abundance enjoyed by the labouring 
classes of Guernsey. In the year 1841, 
there were in England, out of a popu¬ 
lation of nearly fifteen millions, less 
than 700,000 depositors, or one in every 
twenty persons, and the average 
amount of the dejDOsits was 30 1. In 
Guernsey, in the same year, out of a 
population of 26,000 the number of de¬ 
positors was 1920, and the average 
amount of the deposits 40Z.”* The 
evidence as to Jersey and Alderney is 
of a similar character. 

Of the efficiency and productiveness 
of agriculture on the small properties 
of the Channel Islands, Mr. Thornton 
produces ample evidence, the result of 
which he sums up as follows : “ Thus 
it appears that in the two principal 
Channel Islands, the agricultural popu¬ 
lation is, in the one twice, and in the 
other, three times, as dense as in Bri¬ 
tain, there being in the latter country 
only one cultivator to twenty-two acres 
of cultivated land, while in Jersey there 
is one to eleven, and in Guernsey one 
to seven acres. Yet the agriculture of 
these islands maintains,. besides culti¬ 
vators, non-agricultural populations, 
respectively four and five times as 
dense as that of Britain. This differ¬ 
ence does not arise from any superi¬ 
ority of soil or climate possessed by the 
Channel Islands, for the former is na¬ 
turally rather poor, and the latter is 
3 iot better than in the southern coun¬ 
ties of England. It is owing entirely 
to the assiduous care of the farmers, 
and to the abundant use of manure.”t 
“ In the year 1837,” he says in another 
place,! “ the average yield of wheat in 
the large farms of England was only 
twenty-one bushels, and the highest 
average for any one county was no 
more than twenty-six bushels. The 

* A Plea for Peasant Proprietors. By 
William Thomas Thornton, pp. 99—104. 

t Ibid. p. 3S. 

x Ibid. p. 9. 


highest average since claimed for the 
whole of England, is thirty bushels. 
In Jersey, where the average size of 
farms is only sixteen acres, the average 
produce of wheat per acre was stated 
by Inglis in 1834 to be thirty-six 
bushels; but it is proved by official 
tables to have been forty bushels in 
the five years ending with 1833. In 
Guernsey, where farms arc still 
smaller, four quarters per acre, ac¬ 
cording to Inglis, is considered a good, 
but still a very common crop.” “ Thirty 
shillings* an acre would be thought in 
England a very fair rent for middling 
land; but in the Channel Islands, it is 
only very inferior land that would not 
let for at least 4Z.” 

§ 7. It is from France, that im¬ 
pressions unfavourable to peasant pro¬ 
perties are generally drawn ; it is in 
France that the system is so often as¬ 
serted to have brought forth its fruit 
in the most wretched possible agricul¬ 
ture, and to be rapidly reducing, if not 
to have already reduced, the peasantry, 
by subdivision of land, to the verge of 
starvation. It is difficult to account 
for the general prevalence of impres¬ 
sions so much the reverse of truth. 
The agriculture of France was 
wretched, and the peasantry in great 
indigence, before the Revolution. At 
that time they were not, so universally 
as at present, landed proprietors. There 
were, however, considerable districts of 
France where the land, even then, was 
to a great extent the property of the 
peasantry, and among these were 
many of the most conspicuous excep¬ 
tions to the general bad agriculture 
and to the general poverty. An au¬ 
thority, on this point, not to be dis¬ 
puted, is Arthur Young, the inveterate 
enemy of small farms, the coryphaeus 
of the modern English school of agri¬ 
culturists ; who yet, travelling over 
nearly the whole of France in 1787, 
1788, and 1789, when he finds remark¬ 
able excellence of cultivation, never 
hesitates to ascribe it to peasant pro¬ 
perty. “Leaving Sauve,” says he,f 

* A Plea for Peasant Proprietors, p. 32. 

t Arthur Young’s Travels in France, 
vol. i. p. 50. 







PEASANT PROPRIETORS. 


4 1 was much struck with a large 
tract of land, seemingly nothing but 
huge rocks; yet most of it enclosed 
and planted with the most industrious 
-attention. Every man has an olive, a 
mulberry, an almond, or a peach tree, 
and vines scattered among them ; so 
that the whole ground is covered with 
the oddest mixture of these plants and 
bulging rocks, that can be conceived. 
The inhabitants of this village deserve 
encouragement for their industry ; and 
if I were a French minister they should 
have it. They would soon turn all the 
deserts around them into gardens. 
Such a knot of active husbandmen, 
who turn their rocks into scenes of 
fertility, because I suppose their own , 
would do the same by the wastes, if 
animated by the same omnipotent 
principle.” Again:* “Walk to Ros- 
sendal,” (near Dunkirk) “ where M. 
le Brim has an improvement on the 
Dunes, which he very obligingly showed 
me. Between the town and that place 
is a great number of neat little houses, 
built each with its garden, and one or 
two fields enclosed, of most wretched 
blowing dune sand, naturally as white 
as snow, but improved by industry. 
The magic of property turns sand to 
gold.” And again :f “Going out of 
< iange, 1 was surprised to find by far 
the greatest exertion in irrigation 
which I had yet seen in France ; and 
then passed by some steep mountains, 
highly cultivated in terraces. Much 
watering at St. Lawrence. The scenery 
very interesting to a farmer. From 
Gange, to the mountain of rough 
ground which I crossed, the ride has 
been the most interesting which I have 
taken in France; the efforts of in¬ 
dustry the most vigorous ; the anima¬ 
tion the most lively. An activity has 
been here, that has swept away all 
difficulties before it, and has clothed 
the very rocks with verdure. It would 
be a disgrace to common sense to ask 
the cause ; the enjoyment of property 
'must have done it. Give a man the 
secure possession of a bleak rock, and 
he will turn it into a garden; give him 

* Arthur Young’s Travels in France, 
■vol. i. p. 88. 

t Ibid. p. 51. 


169 

a nine years lease of a garden, and he 
will convert it into a desert.” 

-In his description of the country at 
the foot of the Western Pyrenees, he 
speaks no longer from surmise, but 
from knowledge. “ Take* the road to 
Moneng, and come presently to a scene 
which was so new to me in France, 
that I could hardly believe my own 
eyes. A succession of many well- 
built, tight, and comfortable farming 
cottages built of stone and covered 
with tiles ; each having its little gar¬ 
den, enclosed by dipt thorn-hedges, 
with plenty of peach and other fruit- 
trees, some fine oaks scattered in the 
hedges, and young trees nursed up 
with so much care, that nothing but 
the fostering attention of the owner 
could effect anything like it. To 
every house belongs a farm, per¬ 
fectly well enclosed, with grass bor¬ 
ders mown and neatly kept around 
the corn-fields, with gates to pass 
from one enclosure to another. There 
are some parts of England (where 
small yeomen still remain) that re¬ 
semble this country of Bearn; but 
we have very little that is equal to 
what I have seen in this ride of twelve 
miles from Pau to Moneng. It is all 
in the hands of little proprietors, with¬ 
out the farms being so small as to 
occasion a vicious and miserable popu¬ 
lation. An air of neatness, warmth, 
and comfort breathes over the whole. 
It is visible in their new-built houses 
and stables ; in their little gardens ; in 
their hedges; in the courts before their 
doors; even in the coops for their 
poultry, and the sties for their hogs. 
A peasant does not think of rendering 
his pig comfortable, if his own happi¬ 
ness hang by the thread of a nine 
years’ lease. We are now in Bdarn, 
within a few miles of the cradle of 
Henry IV. Do they inherit these 
blessings from that good prince ? The 
benignant genius of that good monarch 
seems to reign still over the country; 
each peasant has the fowl in the pot." 
He frequently notices the excellence 
of the agriculture of French Flanders, 
where the farms “ are all small, and 

* Arthur Young’s Travels in France, 
vol. i. 



170 BOOK II. CHAPTER VI. § 7. 


m rich in the hands of little proprie tors.”* 
In the Pays de Caux, also a country of 
small properties, the agriculture was 
miserable ; of which his explanation 
was, that it “ is a manufacturing 
country, and farming is but a secon¬ 
dary pursuit to the cotton fabric, which 
spreads over the whole of it.”f The 
same district is still a seat of manu¬ 
factures, and a country of small pro¬ 
prietors, and is now, whether we judge 
from the appearance of the crops or 
from the official returns, one of the 
best cultivated in France. In “ Flan¬ 
ders, Alsace, and part of Artois, as 
well as on the banks of the Garonne, 
France possesses a husbandry equal to 
our own.”i Those countries, and a 
considerable part of Quercy, “ are cul¬ 
tivated more like gardens than farms. 
Perhaps they are too much like gar¬ 
dens, from the smallness of properties.”§ 
In those districts the admirable rota¬ 
tion of crops, so long practised in Italy, 
but at that time generally neglected 
in France, was already universal. 
“The rapid succession of crops, the 
harvest of one being but the signal of 
sowing immediately for a second,” (the 
same fact which strikes all observers 
in the valley of the Rhine,) “ can 
scarcely be carried to greater perfec¬ 
tion : and this is a point, perhaps, of 
all others the most essential to good 
husbandry, when such crops are so 
justly distributed as we generally find 
them in these provinces ; cleaning and 
ameliorating ones being made the 
preparation for such as foul and ex¬ 
haust.” 

It must not, however, be supposed 
that Arthur Young’s testimony on the 
subject of peasant properties is uni¬ 
formly favourable. In Lorraine, Cham¬ 
pagne, and elsewhere, he finds the 
agriculture bad, and the small pro¬ 
prietors very miserable, in consequence, 
as he says, of the extreme subdivision 
of the land. His opinion is thus summed 
up :||—“ Before I travelled, I conceived 
that small farms, in property, were 
very susceptible of good cultivation; 
and that the occupier of such, having 

* Young, pp. 322—4. 

t Ibid. p. 325. i Ibid. vol. i. p. 357. 

§ Ibid. p. 384. 1| Ibid. p. 412. 


no rent to pay, might be sufficiently at 
his ease to work improvements, and 
carry on a vigorous husbandry; but 
what I have seen in France, has 
greatly lessened my good opinion of 
them. In Flanders, I saw excellent 
husbandry on properties of 30 to 100 
acres; but we seldom find here such 
small patches of property as are common 
in other provinces. In Alsace, and 
on the Garonne, that is, on soils of 
such exuberant fertility as to demand 
no exertions, some small properties 
also are well cultivated. In Bearn, I 
passed through a region of little farmers, 
whose appearance, neatness, ease, and 
happiness charmed me ; it was what 
property alone could, on a small scale, 
effect; but these were by no means 
contemptibly small; they are, as I 
judged by the distance from house to 
house, from 40 to 80 acres. Except 
these, and a very few other instances, 
I saw nothing respectable on small 
properties, except a most unremitting 
industry. Indeed, it is necessary to 
impress on the reader’s mind, that 
though the husbandry I met with, in 
a great variety of instances on little 
properties, was as bad as can be well 
conceived, yet the industry of the pos¬ 
sessors was so conspicuous, and so 
meritorious, that no commendations 
would be too great for it. It was 
sufficient to prove that property in 
land is, of all others, the most active 
instigator to severe and incessant 
labour. And this truth is of such 
force and extent, that I know no way 
so sure of carrying tillage to a moun¬ 
tain top, as by permitting the adjoin¬ 
ing villagers to acquire it in property ; 
in fact, we see that in the mountains 
of Languedoc, &c., they have con¬ 
veyed earth in baskets, on their backs, 
to form a soil where nature had denied 
it.” 

The experience, therefore, of this 
celebrated agriculturist, and apostle of 
the grande culture, may be said to be, 
that the effect of small properties, cul¬ 
tivated by peasant proprietors, is ad¬ 
mirable when they arc not too small: 
so small, namely, as not fully to occupy 
the time and attention of the family ; 
for he often complains, with great 



PEASANT PROPRIETORS. 


apparent reason, of tlie quantity of 
idle time which the peasantry had on 
their hands when the land was in 
very small portions, notwithstanding 
the ardour with which they toiled to 
improve their little patrimony, in every 
way which their knowledge or ingenuity 
could suggest. He recommends, ac¬ 
cordingly, that a limit of subdivision 
should he fixed by law; and this is 
by no means an indefensible proposi¬ 
tion in countries, if such there are, 
where division, having already gone 
farther than the state of capital and 
the nature of the staple articles of cul¬ 
tivation render advisable, still con¬ 
tinues progressive. That each peasant 
should have a patch of land, even in 
full property, if it is not sufficient to 
support him in comfort, is a system 
with all the disadvantages, and scarcely 


171 

any of the benefits, of small properties; 
since he must either live in indigence 
on the produce of his land, or depend 
as habitually as if he had no landed 
possessions, on the wages of hired 
labour: which, besides, if all the hold¬ 
ings surrounding him are of similar 
dimensions, he has little prospect of 
finding. The benefits of peasant pro¬ 
perties are conditional on their not 
being too much subdivided; that is, 
on their not being required to main¬ 
tain too many persons, in proportion, 
to the produce that can be raised from 
them by those persons. The question 
resolves itself, like most questions re¬ 
specting the condition of the labouring 
classes, into one of population. Are 
small properties a stimulus to undue 
multiplication, or a check to it ? 


CHAPTER VII. 


CONTINUATION OF 

§ 1. Before examining the influ¬ 
ence of peasant properties on the ulti¬ 
mate economical interests of the 
labouring class, as determined by the 
increase of population, let us note the 
points respecting the moral and social 
influence of that territorial arrange¬ 
ment, which may be looked upon as 
established, either by the reason of the 
case, or by the facts and authorities 
cited in the preceding chapter. 

The reader new to the subject must 
have been struck with the powerful 
impression made upon all the wit¬ 
nesses to whom I have referred, by 
what a Swiss statistical writer calls 
the “ almost superhuman industry” of 
peasant proprietors.* On this point, 
at least, authorities are unanimous. 
Those who have seen only one country 
of peasant properties, always think the 
inhabitants of that country the most 
industrious in the world. There is as 
little doubt among observers, with 

* The Canton Schaffhausen (before quoted), 
p. 53. 


THE SAME SUBJECT. 

what feature in the condition of the 
peasantry this pre-eminent industry is 
connected. It is “the magic of pro¬ 
perty,’’ which, in the words of Arthur 
Young, “ turns sand into gold.” The 
idea of property does not, however, 
necessarily imply that there should be 
no rent, any more than that there 
should be no taxes. It merely implies 
that the rent should be a fixed charge, 
not liable to be raised against the pos¬ 
sessor by his own improvements, or by 
the will of a landlord. A tenant at a 
quit-rent is, to all intents and purposes, 
a proprietor; a copyholder is not less 
so than a freeholder. What is wanted 
is permanent possession on fixed terms. 
“ Give a man the secure possession of 
a bleak rock, and he will turn it into 
a garden ; give him a nine years’ lease 
of a garden, and he will convert it 
into a desert.” 

The details which have been cited, 
and those, still more minute, to bo 
found in the same authorities, con¬ 
cerning the habitually elaborate sys- 






172 BOOK II. CHAPTER VII. § 2. 


tem of cultivation, and the thousand 
devices of the peasant proprietor for 
making every superfluous hour and 
odd moment instrumental to some in¬ 
crease in the future produce and value 
of the land, will explain what has been 
said in a previous chapter* ** respecting 
the far larger gross produce which, 
with anything like parity of agricul¬ 
tural knowledge, is obtained, from the 
same quality of soil, on small farms, 
at least when they are the property of 
the cultivator. The treatise on “Flem¬ 
ish Husbandry” is especially instruc¬ 
tive respecting the means by which 
untiring industry does more than out¬ 
weigh inferiority of resources, imper¬ 
fection of implements, and ignorance 
of scientific theories. The peasant 
cultivation of Flanders and Italy is 
affirmed to produce heavier crops, in 
equal circumstances of soil, than the 
best cultivated districts of Scotland 
and England. It produces them, no 
doubt, with an amount of labour 
which, if paid for by an employer, 
would make the cost to him more than 
equivalent to the benefit; but to the 
peasant it is not cost, it is the devotion 
of time which he can spare, to a fa¬ 
vourite pursuit, if we should not 
rather say a ruling passion.f 

* Supra, Book i. ch. ix. § 4. 

f Read the graphic description by the his¬ 
torian Michelet, of the feelings of a peasant 
proprietor towards his land. 

“ If we would know the inmost thought, 
the passion, of the French peasant, it is very 
easy. Let us walk out on Sunday into the 
country and follow him. Behold him yonder, 
walking in front of us. It is two o’clock ; 
his wife is at vespers; he has on his Sunday 
clothes; I perceive that he is going to visit 
his mistress. 

“ What mistress? His land. 

“ I do not say he goes straight to it. No, he 
is free to-day, and may either go or not. Does 
he not go every day in the week ? Accord¬ 
ingly, he turns aside, he goes another way, he 
has business elsewhere. And yet—he goes. 

** It is true, he was passing close by ; it was 
an opportunity. He looks, but apparently 
he will not go in ; what for? And yet—he 
•enters. 

“At least it is probable that he will not 
work ; he is in his Sunday dress : he has a 
clean shirt and blouse. Still, there is no 
harm in plucking up this weed and throwing 
out that stone. There is a stump, too, which 
is in the way; but he has not his tools with 
him, he will do it to-morrow. 

“ Then he folds his arms and gazes, serious 


We have seen, too, that it is not 
solely by superior exertion that the 
Flemish cultivators succeed in ob¬ 
taining these brilliant results. The 
same motive which gives such inten¬ 
sity to their industry, placed them 
earlier in possession of an amount of 
agricultural knowledge not attained 
until much later in countries where 
agriculture was carried on solely by 
hired labour. An equally high testi¬ 
mony is borne by M. de Lavergne* 
to the agricultural skill of the small 
proprietors, in those parts of France 
to which the petite culture is really 
suitable. “ In the rich plains of 
Flanders, on the banks of the Rhine, 
the Garonne, the Charente, the Rhone, 
all the practices which fertilize the 
land and increase the productiveness 
of labour are known to the very 
smallest cultivators, and practised by 
them, however considerable may be the 
advances which they require. In their 
hands, abundant manures, collected at 
great cost, repair and incessantly in¬ 
crease the fertility of the soil, in spite 
of the activity of cultivation. The 
races of cattle are superior, the crops 
magnificent. Tobacco, flax, colza, 
madder, beetroot, in some places ; in 
others, the vine, the olive, the plum, 
the mulberry, only yield their abun¬ 
dant treasures to a population of in¬ 
dustrious labourers. Is it not also to 
the petite culture that we are indebted 
for most of the garden produce ob¬ 
tained by dint of great outlay in the 
neighbourhood of Paris ?” 

§ 2. Another aspect of peasant 
properties, in which it is essential that 
they should be considered, is that of 
an instrument of popular education. 
Books and schooling are absolutely 
necessary to education ; but not all- 
sufficient. The mental faculties will 

and careful. He gives a long, a very long 
look, and seems lost in thought. At last, if 
he thinks himself observed, if he seesapasser- 
by, he moves slowly away. Thirty paces 
off he stops, turns round, and casts on his 
land a last look, sombre and profound, but 
to those who can see it, the look is full of 
passion, of heart, of devotion.”— The Fcople, 
by J. Michelet, Part i. ch. 1. 

* Essay on the Rural Economy of England 
Scotland, and Ireland, 3rd ed. p. 127. 




FEASANT PROPRIETORS. 173 


be most developed where they are most 
exercised; and what gives more exer¬ 
cise to them than the having a multi¬ 
tude of interests, none of which can 
he neglected, and which can ho pro¬ 
vided for only hy varied efforts of will 
and intelligence ? Some of the dis¬ 
paragers of small properties lay groat 
stress on the cares and anxieties which 
heset the peasant proprietor of the 
Rhineland or Flanders. It is precisely 
those cares and anxieties which tend 
to make him a superior being to an 
English day-labourer. It is, to he sure, 
rather abusing the privileges of fair 
argument to represent the condition of 
a day-labourer as not an anxious one. 
I can conceive no circumstances in 
which he is free from anxiety, where 
there is a possibility of being out of 
employment; unless he has access to 
a profuse dispensation of parish pay, 
and no shame or reluctance in de¬ 
manding it. The day-labourer has, in 
the existing state of society and popu¬ 
lation, many of the anxieties which 
have not an invigorating effect on the 
mind, and none of those which have. 
The position of the peasant proprietor 
of Flanders is the reverse. From the 
anxiety which chills and paralyses— 
the uncertainty of having food to eat 
—few persons are more exempt: it 
requires as rare a concurrence of cir¬ 
cumstances as the potato failure com¬ 
bined with an universal bad harvest, to 
bring him within reach of that danger. 
His anxieties are the ordinary vicissi¬ 
tudes of more and less ; his cares are 
that he takes his fair share of the 
business of life ; that lie is a free 
human being, and not perpetually a 
child, which seems to be the approved 
condition of the labouring classes ac¬ 
cording to the prevailing philanthropy. 
He is no longer a being of a different 
order from the middle classes ; he has 
pursuits and objects like those which 
occupy them, and give to their intel¬ 
lects the greatest part of such cultiva¬ 
tion as they receive. If there is a 
first principle in intellectual education, 
it is this—that the discipline which 
does good to the mind is that in which 
the mind is active, not that in which 
it is passive. The secret for develop¬ 


ing the faculties is to give them much 
to do, and much inducement to do it. 
This detracts nothing from the impor¬ 
tance, and even necessity, of other 
kinds of mental cultivation. The pos¬ 
session of property will not prevent the 
peasant from being coarse, selfish, and 
narrow-minded. These things depend 
on other influences, and other kinds of 
instruction. But this great stimulus 
to one kind of mental activity, in no 
way impedes any other means of in¬ 
tellectual development. On the con¬ 
trary, by cultivating the habit of 
turning to practical use every frag¬ 
ment of knowledge acquired, it helps 
to render that schooling and reading 
fruitful, which without some such aux¬ 
iliary influence are in too many cases¬ 
like seed thrown on a rock. 

§ 3. It is not on the intelligence 
alone that the situation of a peasant 
proprietor exercises an improving in¬ 
fluence. It is no less propitious to the 
moral virtues of prudence, temperance, 
and self-control. Day-labourers, where 
the labouring class mainly consists of 
them, are usually improvident; they 
spend carelessly to the full extent of 
their means .and let the future shift 
for itself. This is so notorious, that 
many persons strongly interested in 
the welfare of the labouring classes, 
hold it as a fixed opinion that an in¬ 
crease of wages would do them little 
good, unless accompanied by at least 
a corresponding improvement in their 
tastes and habits. The tendency of 
peasant proprietors, and of those who 
hope to become proprietors, is to the 
contrary extreme; to take even too 
much thought for the morrow. They 
are oftener accused of penuriousness 
than of prodigality. They deny them¬ 
selves reasonable indulgences, and live- 
wretchedly in order to economize. In 
Switzerland almost everybody saves, 
who has any means of saving; the 
case of the Flemish farmers has been 
already noticed: among the French, 
though a pleasure-loving and reputed 
to be a self-indulgent people, the spirit 
of thrift is diffused through the rural 
population in a manner most gratifying 
as a whole, and which in individual 



BOOK II. CHAPTER VII. § 4. 


174 

instances errs rather on the side of ex¬ 
cess than defect. Among those who, 
from the hovels in which they live, and 
the herbs and roots which constitute 
their diet, are mistaken by travellers 
for proofs and specimens of general 
indigence, there are numbers who have 
hoards in leathern bags, consisting of 
sums in five-franc pieces, which they 
keep by them perhaps for a whole gene¬ 
ration, unless brought out to be expen¬ 
ded in their most cherished gratification 
—the purchase of land. If there is a 
moral inconvenience attached to a 
state of society in which the peasantry 
have land, it is the danger of their 
being too careful of their pecuniary 
concerns; of its making them crafty, 
and “ calculating’’ in the objectionable 
sense. The French peasant is no 
simple countryman, no downright 
“peasant of the Danube:”* both in 
fact and in fiction he is now “the 
crafty peasant.” That is the stage 
which he has reached in the progres¬ 
sive development which the constitu¬ 
tion of things has imposed on human 
intelligence and human emancipation. 
But some excess in this direction is a 
small and a passing evil compared 
with recklessness and improvidence in 
the labouring classes, and a cheap price 
to pay for the inestimable worth of the 
virtue of self-dependence, as the gene¬ 
ral characteristic of a people: a virtue 
which is one of the first conditions of 
excellence in a human character—the 
stock on which if the other virtues are 
not grafted, they have seldom any firm 
root; a quality indispensable in the 
case of a labouring class, even to any 
tolerable degree of physical comfort; 
and by which the peasantry of France, 
and of most European countries of 
peasant proprietors, are distinguished 
beyond any other labouring population. 

§ 4. Is it likely, that a state of eco¬ 
nomical relations so conducive to fru¬ 
gality and prudence in every other 
respect, should be prejudicial to it in 
the cardinal point of increase of popu¬ 
lation ? That it is so, is the opinion 
expressed by most of those English 
political economists who have written 
anything about the matter. Mr. 
♦See the celebrated fable of La Fontaine. 


M‘Culloch’s opinion is well known. 
Mr. Jones affirms,* that a “peasant 
population, raising their own wages 
from the soil, and consuming them in 
kind, are universally acted upon very 
feebly by internal checks, or by mo¬ 
tives disposing them to restraint. The 
consequence is, that unless some ex¬ 
ternal cause, quite independent of their 
will, forces such peasant cultivators to 
slacken their rate of increase, they 
will, in a limited territory, very rapidly 
approach a state of want and penury, 
and will be stopped at last only by 
the physical impossibility of procuring 
subsistence.” He elsewheref speaks 
of such a peasantry as “exactly in the 
condition in which the animal dis¬ 
position to increase their numbers is 
checked by the fewest of those ba¬ 
lancing motives and desires which 
regulate the increase of superior ranks 
or more civilized people.” The 
“causes of this peculiarity” Mr. 
Jones promised to point out in a sub¬ 
sequent work, which never made its 
appearance. I am totally unable to 
conjecture from what theory of human 
nature, and of the motives which in¬ 
fluence human conduct, he would have 
derived them. Arthur 1 oung assumes 
the same “peculiarity” as a fact; 
but, though not much in the habit 
of qualifying his opinions, he does not 
push his doctrine to so violent an 
extreme as Mr. Jones; having, as we 
have seen, himself testified to various 
instances in which peasant populations, 
such as Mr. Jones speaks of, were not 
tending to “a state of want and 
penury,” and were in no danger what¬ 
ever of coming in contact with “ phy¬ 
sical impossibility of procuring sub¬ 
sistence.” 

That there should be discrepancy of 
experience on this matter, is easily to 
be accounted for. Whether the labour- 
ing people live by land or by wages, 
they have always hitherto multiplied 
up to the limit set by their habitual 
standard of comfort. When that 
standard was low, not exceeding a 
scanty subsistence, the size of pro¬ 
perties, as well as the rate of wages, 

* Essay on the Distribution of Wealth, 
p. 146. 

t Ibid. p. 68. 




PEASANT PROPRIETORS. 


has been kept down to what would 
barely support life. Extremely low 
ideas of what is necessary for sub¬ 
sistence, are perfectly compatible with 
peasant properties; and if a people 
have always been used to poverty, 
and habit has reconciled them to it, 
there will be over-population, and ex¬ 
cessive subdivision of land. But this 
is not to the purpose. The true ques¬ 
tion is, supposing a peasantry to pos¬ 
sess land not insufficient but sufficient 
for their comfortable support, are they 
more, or less, likely to fall from this 
state of comfort through improvident 
multiplication, than if they were living 
in an equally comfortable manner as 
hired labourers ? All a priori con¬ 
siderations are in favour of their being 
less likely. The dependence of wages 
on population is a matter of specu¬ 
lation and discussion. That wages 
would fall if population were much in¬ 
creased is often a matter of real doubt, 
and always a thing which requires 
some exercise of the thinking faculty 
for its intelligent recognition. But 
every peasant can satisfy himself from 
evidence which he can fully appre¬ 
ciate, whether his piece of land can be 
made to support several families in the 
same comfort in which it supports one. 
Eew people like to leave to their 
children a worse lot in life than their 
own. The parent who has land to 
leave, is perfectly able to judge whether 
the children can live upon it or not : 
but people who are supported by 
wages, see no reason why their sons 
should be unable to support themselves 
in the same way, and trust accordingly 
to chance. “ In even the most useful 
and necessary arts and manufactures,” 
says Mr. Laing,* “the demand for 
labourers is not a seen, known, steady, 
and appreciable demand : but it is so 
in husbandry,” under small properties. 
“ The labour to be done, the subsist¬ 
ence that labour will produce out of 
his portion of land, are seen and known 
elements in a man’s calculation upon 
his means of subsistence. Can his 
square of land, or can it not, subsist a 
family ? Can he marry or not ? are 
questions which every man can answer 
without delay, doubt, or speculation. 

* Rotes of a Traveller, p. 46, 


175 

It is the depending on chance, where 
judgment has nothing clearly set before 
it, that causes reckless, improvident 
marriages in the lower, as in the 
higher classes, and produces among us 
the evils of over-population; and chance 
necessarily enters into every man’s 
calculations, when certainty is removed 
altogether ; as it is, where certain sub¬ 
sistence is, by our distribution of pro¬ 
perty, the lot of but a small portion 
instead of about two-thirds of the 
people.” 

There never has been a writer more 
keenly sensible of the evils brought 
upon the labouring classes by excess 
of population, than Sismondi, and this 
is one of the grounds of his earnest 
advocacy of peasant properties. He 
had ample opportunity, in more coun¬ 
tries than one, for judging of their 
effect on population. Let us see his 
testimony. “ In tire countries in which 
cultivation by small proprietors still 
continues, population increases regu¬ 
larly and rapidly until it has attained 
its natural limits ; that is to say, inhe¬ 
ritances continue to be divided and 
subivided among several sons, as long 
as, by an increase of labour, each 
family can extract an equal income 
from a smaller portion of land. A 
father who possessed a vast extent of 
natural pasture, divides it among his 
sons, and they turn it into fields and 
meadows; his sons divide it among 
their sons, who abolish fallows: each 
improvement in agricultural knowledge 
admits of another step in the sub¬ 
division of property. But there is no 
danger lest the proprietor should bring 
up his children to make beggars of 
them. He knows exactly what inhe¬ 
ritance he has to leave them; he 
knows that the law will divide it 
equally among them; he sees the 
limit beyond which this division would 
make them descend from the rank 
which he has himself filled, and a just 
family pride, common to the peasant 
and to the nobleman, makes him ab¬ 
stain from summoning into life, children 
for whom ho cannot properly provide. 
If more are born, at least they do not 
marry, or they agree among themselves, 
which of several brothers shall per¬ 
petuate the family. It is not found 



176 BOOK II. CHAPTER VII. § 4. 


that in the Swiss Cantons, the patri¬ 
monies of the peasants are ever so 
divided as to reduce them below an 
honourable competence; though the 
habit of foreign service, by opening to 
the children a career indefinite and 
uncalculable, sometimes calls forth a 
superabundant population.” * 

There is similar testimony respect¬ 
ing Norway. Though there is no law 
or custom of primogeniture, and no 
manufactures to take off a surplus 
population, the subdivision of property 
is not carried to an injurious extent. 
‘'The division of the land among 
children,” says Mr. Laing.f “ appears 
not, during tire thousand years it has 
been in operation, to have had the 
effect of reducing the landed pro¬ 
perties to the minimum size that will 
barely support human existence. I 
have counted from tivc-and-twenty to 
forty cows upon farms, and that in 
a country in which the former must, 
for at least seven months in the year, 
have winter provender and houses pro¬ 
vided for all the cattle. It is evident 
that some cause or other, operating on 
aggregation of landed property, coun¬ 
teracts the dividing effects of partition 
among children. That cause can be 
no other than what I have long con¬ 
jectured would be effective in such 
a social arrangement; viz. that in 
a country where land is held, not in 
tenancy merely, as in Ireland, but 
in full ownership, its aggregation by 
the deaths of co-heirs, and by the 
marriages of the female heirs among 
the body of landholders, will balance 
its subdivision by the equal succession 
of children. The whole mass of pro¬ 
perty will, I conceive, be found in such 
a state of society to consist of as many 
estates of the class of 1000Z., as many 
of 100 1 ., as many of 10Z., a year, at 
one period as at another.” That this 
should happen, supposes diffused 
through society a very efficacious pru¬ 
dential check to population : and it is 
reasonable to give part of the credit 
of this prudential restraint to the pecu¬ 
liar adaptation of the peasant-proprie¬ 
tary system for fostering it. 

* JYouveaux Principes, Book iii. ch, 3. 
t Residence in Norway, p. 18. 


“ In some parts of Switzerland,” 
says Mr. Kay,* “ as in the canton of 
Argovie for instance, a peasant never 
marries before he attains the age of 
twenty-five years, and generally much 
later in life ; and in that canton the 
women very seldom marry before they 
have attained the age of thirty. . . . 
Nor do the division of land and the 
cheapness of the mode of conveying it 
from one man to another, encourage 
the providence of the labourers of the 
rural districts only. They act in the 
same manner, though perhaps in a 
less degree, upon the labourers of the 
smaller towns. In the smaller pro¬ 
vincial towns it is customary for a 
labourer to own a small plot of ground 
outside the town. This plot lie cul¬ 
tivates in the evening as his kitchen 
garden. He raises in it vegetables* 
and fruits for the use of his family 
during the winter. After his day’s 
work is over, he and his family repair 
to the garden for a short time, which 
they spend in planting, sowing, weed¬ 
ing, or preparing for sowing, a harvest, 
according to the season. The desire 
to become possessed of one of these 
gardens operates very strongly in 
strengthening prudential habits and 
in restraining improvident marriages. 
Some of the manufacturers in the 
canton of Argovie told me that a 
townsman was seldom contented until 
he had bought a garden, or a garden 
and house, and that the town labourers 
generally deferred their marriages for 
some years, in order to save enough 
to purchase either one or both of these 
luxuries.” 

The same writer shows by statistical 
evidence f that in Prussia the average 
age of marriage is not only much later 
than in England, but “is gradually 
becoming later than it was formerly,” 
while at the same time “ fewer illegiti¬ 
mate children are born in Prussia than 
in any other of the European coun¬ 
tries.” “ Wherever I travelled,” says 
Mr. Kay,± “ in North Germany and 
Switzerland, I was assured by all that 
the desire to obtain land, which was 
felt by all the peasants, was acting as 

* Vol. i. pp. 67-9, 
t Ibid. pp. 75-9. X Ibid. p. 90. 




PEASANT PROPRIETORS. 


The strongest possible check upon 
undue increase of population. 1 ’* 

in Flanders, according to J\Ir. 
Fauche, the British Consul at Ostend,f 
“ farmer's sons and those who have the 
means to become farmers will delay 
their marriage until they get posses¬ 
sion of a farm.” Once a farmer, the 
next object is to become a proprietor. 
“The first thing a Dane does with his 
savings,” says Mr. Browne, the Consul 
at Copenhagen,j “is to purchase a 
clock, then a horse and cow, which he 
hires out, and which pays a good 
interest. Then his ambition is to 
become a petty proprietor, and this 
class of persons is better off than any 
in Denmark. Indeed, I know of no 
people in any country who have more 
easily within tlieir reach all that is 
really necessary for life than this class, 
which is very large in comparison with 
that of labourers.” 

But the experience which most de¬ 
cidedly contradicts the asserted ten¬ 
dency of peasant proprietorship to 
produce excess of population, is the 
case of France. In that country the 
experiment is not tried in the most 
favourable circumstances, a large pro¬ 
portion of the properties being too 
small. The number of landed pro¬ 
prietors in Fi’ance is not exactly as¬ 
certained, but on no estimate does it 
fall much short of five millions; which, 
on the lowest calculation of the number 
of persons of a family (and for France 

* The Prussian minister of statistics, in a 
work (Condition of the People in Prussia) 
which I am obliged to quote at second 
hand from Mr. Kay, after proving by figures 
the great and progressive increase of the 
consumption of food and clothing per 
head of the population, from which he justly 
infers a corresponding increase of the pro¬ 
ductiveness of agriculture, continues : “ The 
division of estates has, since 1831, proceeded 
more and more throughout the country. 
There are now many more small independent 
proprietors than formerly. Yet, however 
many complaints of pauperism are heard 
among the dependent labourers, we never 
hear it complained that pauperism is in¬ 
creasing among the peasant proprietors.”— 
Kay, i. 262-6. 

t In a communication to the Commission¬ 
ers of Poor Law Enquiry, p. G40 of their 
Foreign Communications, Appendix F to 
Mieir First Report. 

% Ibid. 268. 


17V 

it ought to be a low calculation), shows 
much more than half the population 
as either possessing, or entitled to in¬ 
herit, landed property. A majority of 
the properties are so small as not to 
afford a subsistence to the proprietors, 
of whom, according to some compu¬ 
tations, as many as three millions are 
obliged to eke out their means of sup¬ 
port either by working for hire, or by 
taking additional land, generally on 
metayer tenure. When the property 
possessed is not sufficient to relieve 
the possessor from dependence on 
wages, the condition of a proprietor 
loses much of its characteristic efficacy 
as a check to over-population: and if 
the prediction so often made in Eng¬ 
land had been realized, and France 
had become a “ pauper warren,’’ the 
experiment would have proved nothing 
against the tendencies of the same 
system of agricultural economy in 
other circumstances. But what is the 
fact ? That the rate of increase of 
the French population is the slowest 
in Europe. During the generation 
which the Revolution raised from the 
extreme of hopeless wretchedness to 
sudden abundance, a great increase of 
population took place. But a gene¬ 
ration has grown up, which, having 
been born in improved circumstances, 
has. not learnt to be miserable; and 
upon them the spirit of thrift operates 
most conspicuously, in keeping the 
increase of population within the in¬ 
crease of national wealth. In a table, 
drawn up by Professor Rau,* of the 

* The following is the table (see p. 1G8 of 
the Belgian translation of Mr. Rau’s large 
work) : 

Per cent. 


United States .... 1820-30 . . 2’92 

Hungary (according to Rohrer) . . „ 2’40 

England.1811-21 . . 1‘78 

„ 1821-31 . . 1-60 

Austria (Rohrer).P30 

Prussia.1816-27 . . Pol 

„ 1820-3') . . P37 

„ 1821-31 . . P27 

Netherlands .... 1821-28 . . P28 

Scotland.1821-31 . . 1-30 

Saxony.1815-30 . . 1*15 

Baden .... 1820-30 (lleunisch) 1T3 

Bavaria.1814-28 . . P08 

Naples.1814-24 . . 0’83 

France .... 1817-27 (Mathieu) 0 - 03 

and more recently (Moreau de Jonnes) 0’55 


But the number given by Moreau do 

N 


P. E. 









BOOK II. CHAPTER VII. § 4. 


178 

rate of annual increase of the popula¬ 
tions of various countries, that of 
France, from 1817 to 1827, is stated at 
3 ^ 5 - per cent, that of England during 
a similar decennial period being 1^ 
annually, and that of the United States 
nearly 3. According to the official 
returns as analyzed by M. Legoyt,* * * § 
the increase of the population, which 
from 1801 to 1806 was at the rate of 
1*28 per cent annually, averaged only 
0'47 per cent from 1806 to 1831; from 
1831 to 1836 it averaged 0’60 per 
cent; from 1836 to 1841, 0'41 per 
cent, and from 1841 to 1846, 0’68 per 


cent.f At the census of 1851 the 
rate of annual increase shown was 
only T08 per cent in the five years, 
or 0'21 annually; and at the census 
of 1856 onty 0'71 per cent in five 
years, or 0'14 annually; so, that, in 
the words of M. de Lavergne, “ popu¬ 
lation has almost ceased to increase 
in France.Even this slow increase 
is wholly the effect of a diminution of 
deaths ; the number of births not in¬ 
creasing at all, while the proportion 
of the births to the population is con¬ 
stantly diminishing.^ This slow growth 
of the numbers of the people, while 


Jonnes, he adds, is not entitled to implicit 
confidence. 

The following table given by M. Q,ue- 
telet (On Man and the Development of his 
Faculties, voL i. ch. 7), also on the au¬ 
thority of Itau, contains additional matter, 
and differs in some items from the preced¬ 
ing, probably from the author’s having 
taken, in those cases, an average of dif¬ 
ferent years: 


Per cent. 


Ireland ....... 2‘45 

Hungary.2'40 

Spain.P66 

England.1 - 65 

Rhenish Pnissia. ... 1*33 

Austria.1'30 

Bavaria.1 ’08 

Netherlands.0 - 94 

Naples.0 - 83 

Fi'ance.0'63 

Sweden.0 - 58 

Lombardy.045 


A very carefully prepared statement. 


by M. Legoyt, in the Journal des Econo - 
mistes for May 1847, which brings up the 
results for France to the census of the pre¬ 


ceding year 1846, is summed up in the fol¬ 
lowing table : 


— 

According 

to the 

census. 

According to 

the excess 

of births 

over deaths. 

i 

Sweden . . . , . 

Per cent. 
0-83 

Per cent. 
1-14 

Norway. 

1-36 

1-30 

Denmark . . , . 

• • • 

0-95 

Russia. 

... 

0-61 

Austria. 

0-85 

0-90 

Prussia. 

1-84 

1-13 

Saxony . . , . . 

1-45 

0-90 

Hanover .... 


0-85’ 

Bavaria. 


0-71 

Wurtemberg. . . 

0.01 

1-00 

Holland. 

0-90 

U03 

Belgium .... 

• •• 

076 

Sardinia . , . . 

1-08 


Great Britain (ex- 

] 1-95 

1-00 

elusive of Ireland) 

France . 

0 - 68 

0-50 

United States . . 

3-27 

... 


* Journal des Economistes for March and May 1847. 

t M. Legoyt is of opinion that the population was undei’stated in 1841, and the increase 
between that time and 1846 consequently overstated, and that the real increase during 
the whole period was something intermediate between the last two averages, or not much 
more than one in two hundred. 

t Journal des Economistes for February 1847. In the Journal for January 1865, M. 
Legoyt gives some of the numbers slightly altered, and, I presume, corrected. The 
series of percentages i3 1‘28, 0 31, 0’69, 0‘60, 0 - 41, O'GS, 0’22, and 0 - 20. The last census, 
that of 1861, shows a slight reaction, the percentage, independently of the newly acquired 
departments, being 0 - 32. 

§ The following are the numbers given by M. Legoyt: 

From 1824 to 1828 annual number of births 981,914, being 1 in 32"30 of the population. 
„ 1829 to 1833 „ „ 965,444, „ 1 in 34 00 „ „ 

„ 1834 to 1838 „ „ 972,993, „ 1 in 3P39 

„ 1839 to 1843 „ „ 970,617, „ 1 in 35'27 

„ 1844 & 1845 „ „ 983,573, „ 1 in 35 - 58 „ „ 


In the last two years the births, according to M. Legoyt, Avere swelled by the effects of 
aconsiderable immigration. “ This diminution of births,” he observes, “ while there is a con¬ 
stant, though not arapid increase both of population and of marriages, can only be attributed 
to the progress of prudence and forethought in families. It was a foreseen consequence of 
our civil and social institutions, which, producing a daily increasing subdivision of fortunes. 





























PEASANT PROPRIETORS. 


capital increases much more rapidly, 
lias caused a noticeable improvement 
in the condition of the labouring class. 
The circumstances of that portion of 
the class who are landed proprietors 
are not easily ascertained with preci¬ 
sion, being of course extremely vari¬ 
able : but the mere labourers, who 
derived no direct benefit from the 
changes in landed property which took 
place at the Revolution, have unques¬ 
tionably much improved in condition 
since that period.* Dr. Rail testifies 

both landed and moveable, call forth in our 
people the instincts of conservation and of 
comfort.” 

In four departments, among which 
are two of the most thriving in Nor¬ 
mandy, the deaths even then exceeded the 
births. The census of 1856 exhibits the re¬ 
markable fact of a positive diminution in the 
population of 54 out of the 86 departments. 
A significant comment on the pauper-warren 
theory. See M. de Lavergne’s analysis of 
the returns. 

* “ The classes of our population which 
have only wages, and are therefore the most 
exposed to indigence, are now (1846) much 
better provided with the necessai'ies of food, 
lodging, and clothing, than they were at the 
beginning of the century. This may be 
proved by the testimony of all persons who 
can remember the earlier of the two periods 
compared. Were there any doubts on the 
subject, they might easily be dissipated by 
consulting old cultivators and workmen, as 
I have myself done in various localities, with¬ 
out meeting with a single contrary testimony; 
we may also appeal to the facts collected by 
an accurate observer, M. Villerme, in his 
Picture of the Moral and Physical Condition 
of the Working Classes, book ii. ch. 1.” 
(Researches on the Causes of Indigence, by A. 
Clement, pp. 84-5.) The same writer speaks 
(p. 118) of ‘‘ the considerable rise which has 
taken place since 1789 in the wages of agri¬ 
cultural day-labourers;” and adds the fol¬ 
lowing evidence of a higher standard of 
habitual requirements, even in that portion 
of the town population, the state of which 
is usually represented as most deplorable. 
*• In the last fifteen or twenty years a con¬ 
siderable change has taken place in the habits 
of the operatives in our manufacturing 
towns: they now expend much more than for- 
merly on clothing and ornament. . .. Certain 
classes of workpeople, such as the canuts of 
Lyons,” (according to all representations, 
liketheircounterpart.our nandloom weavers, 
the very worst paid class of artizans,) “ no 
longer show themselves, as they did formerly, 
covered with filthy rags.” (Page 164.) 

The preceding statements were given in 
former editions of this work, being the best 
to which I had at the time access; but evi¬ 
dence, both of a more recent, and of a more 
minute and precise character, will now be 


179 

to a similar fact in tlio case of another 
country in which the subdivision of 
the land is probably excessive, the 
Palatinate.* 

I am not aware of a single authentic 
instance which supports the assertion 
that rapid multiptication is promoted 
by peasant properties. Instances may 
undoubtedly be cited of its not being 
prevented by them, and one of the 
principal of these is Belgium; the 
prospects of which, in respect to popu¬ 
lation, are at present a matter of con¬ 
found in the important woi’k of M. Leonee 
de Lavergne, Rural Economy of France since 
1789. According to that painstaking, well- 
informed, and most impartial enquirer, the 
average daily wages of a French labourer 
have risen, since the commencement of the 
Revolution, in the ratio of 19 to 30, while, 
owing to the more constant employment, the 
total earnings hare increased in a still greater 
ratio, not short of double. The following 
are the statements of M. de Lavergne (2nd 
ed. p. 57): 

“ Arthur Young estimates at 19 sous [9-^d. ] 
the average of a day’s wages, which must 
now be about 1 franc 50 centimes [Is. 3d.], 
and this increase only represents a part of 
the improvement. Though the rural popu¬ 
lation has remained about the same in num¬ 
bers, the addition made to the population 
since 1789 having centred in the towns, the 
number of actual working dayshas increased, 
first because, the duration of life having 
augmented, the number of able-bodied men 
is greater, and next, because labour is better 
organized, partly through the suppression of 
several festival-holidays, partly by the mere 
effect of a more active demand. When we 
take into account the increased number of 
his working days, the annual receipts of the 
rural workman must have doubled. This 
augmentation of wages answers to at least 
an equal augmentation of comforts, since the 
prices of the chief necessaries of life have 
changed but little, and those of manufac¬ 
tured, for example of woven, articles, have 
materially diminished. The lodging of the 
labourers has also improved, if not in all, 
at least in most of our provinces.” 

M. de Lavergne’s estimate of the average 
amount of a day’s wages is grounded on a 
careful comparison, in this and all other 
economical points of view, of all the different 
provinces of France. 

* In his little book on the Agriculture of 
the Palatinate, already cited. He says that 
the daily wages of labour, which during the 
last years of the war were unusually high, 
and so continued until 1817, afterwards sank 
to a lower money-rate, but that the prices 
of many commodities having fallen in a still 
greater pi’oportion, the condition of the peo¬ 
ple was unequivocally improved. The food 
given to farm labourers by their employers 
has also greatly improved in quantity and 





180 BOOK II. CHAPTER VII. 

siderable uncertainty. Belgium has 
the most rapidly increasing population 
on the Continent; and when the cir¬ 
cumstances of the country require, as 
they must soon do, that this rapidity 
should be checked, there will be a con¬ 
siderable strength of existing habit to 
be broken through. One of the un¬ 
favourable circumstances is the great 
power possessed over the minds of 
the people by the Catholic priesthood, 
whose influence is everywhere strongly 
exerted against restraining population. 

As yet, however, it must be remem¬ 
bered that the indefatigable industry 
and great agricultural skill of the 
people have rendered the existing 
rapidity of increase practically inno 


cuous ; the great number of large es¬ 
tates still undivided affording by their 
gradual dismemberment, a resource for 
the necessary augmentation of the 
gross produce ; and there are, besides, 
many large manufacturing towns, and 
mining and coal districts, which attract 
and employ a considerable portion of 
the annual increase of population. 

§ 5. But even where peasant pro¬ 
perties are aceompanied by an excess 
of numbers, this evil is not necessarily 
attended with the additional econo¬ 
mical disadvantage of too great a sub¬ 
division of the land. It does not follow 
because landed property is minutely 
divided, that farms will be so. As 
large properties are perfectly com¬ 
patible with small farms, so are small 
properties with farms of an adequate 
size ; and a subdivision of occupancy is 
pot an inevitable consequence of even 
undue multiplication among peasant 

quality. “ It is now considerably better than 
about forty years ago, when the poorer class 
obtained less flesh-meat and puddings, and 


§ 5. 

proprietors. As might be expected 
from their admirable intelligence in 
things relating to their occupation, the 
Flemish peasantry have long learnt 
this lesson. “The habit of not divid¬ 
ing properties,” says Dr. Rau,* “ and 
the opinion that this is advantageous, 
have been so completely preserved in 
Flanders, that even now, when a 
peasant dies leaving several children, 
they do not think of dividing his 
patrimony, though it be neither en¬ 
tailed nor settled in trust; they prefer 
selling it entire, and sharing the pro¬ 
ceeds, considering it as a jewel which 
loses its value when it is divided.” 
That the same feeling must prevail 
widely even in France, is shown by 
the great frequency of sales of land, 
amounting in ten years to a fourth 
port of the whole soil of the country; 
and M. Passy, in his tract “ On the 
Changes in the Agricultural Condition 
of the Department of the Eure since 
the year 1800,”f states other facts 
tending to the same conclusion. “ The 
example,” says he, “ of this department 
attests that there does not exist, as 6ome 
writers have imagined, between the 
distribution of property and that of 
cultivation, a connexion which tends 
invincibly to assimilate them. In no 
portion of it have changes of owner¬ 
ship had a perceptible influence on 
the size of holdings. While, in dis¬ 
tricts of small farming, lands belong¬ 
ing to the same owner are ordinarily 
distributed among many tenants, so 
neither is it uncommon, in places where 
the grande culture prevails, for the 
same farmer to rent the lands of several 
proprietors. In the plains of Vexin, 
in particular, many active and rich 
cultivators do not content themselves 
with a single farm ; others add to the 


no cheese, butter, and the like.” (p. 20.) lands of their principal holding, all 

* Su( * an increase of wages’* (adds the Pro- t l 10se j n t ] ie neighbourhood which 
lessor) “ which must be estimated not m ° 

money, but in the quantity of necessaries ! 

and conveniences which the labourer is ena- I * Page 331 of the Brussels translation. He 
bled to procure, is, by universal admission, a l cites as an authority, Schwerz, Fcipera on 
proof that the mass of capital must have in- j Agriculture, i. 185. 

creased.” It proves not only this, but also t One of the many important papers which 
that the labouring population has not in- J have appeared in the Journal des Econo- 
creased in an equal degree ; and that, in this I mistes, the organ of the principal political 
instance as well as in E'rance, the division of j economists of Frances, and doing great and 
the land, even when excessive, has been j increasing honour to their knowledge and 
compatible with a strengthening of the pru- ! ability. M. Passy’s essay has been reprinted 
dential checks to population. separately as a pamphlet. 



PEASANT PROPRIETORS. 


they are able to hire, and in this 
manner make up a total extent which 
in some cases reaches or exceeds two 
hundred hectares” (five hundred Eng¬ 
lish acres). “The more the estates 
are dismembered, the more frequent 
do this sort of arrangements become ; 
and as they conduce to the interest of 
all concerned, it is probable that time 
will confirm them.” 

“ In some places,” says M. dc La- 
vergne,* “ in the neighbourhood of 
Paris, for example, where the advan¬ 
tages of the grande culture become 
evident, the size of farms tends to in¬ 
crease, several farms are thrown to¬ 
gether into one, and farmers enlarge 
their holdings by renting parcelles 
from a number of different proprietors. 
Elsewhere farms as well as properties 
of too great extent, tend to division. 
Cultivation spontaneously finds out the 
organization which suits it best.” It 
is a striking fact, stated by the same 
eminent writer,-}- that the departments 
which have the greatest number of 
small separate accounts with the tax- 
collector, are the Nord, the Somme, 
the Pas de Calais, the Seine Infe- 
rieure, the Aisne, and the Oise ; all 
of them among the richest and best 
cultivated, and the first-mentioned of 
them the very richest and best culti¬ 
vated, in France. 

Undue subdivision, and excessive 
smallness of holdings, are undoubtedly 
a prevalent evil in some countries of 
peasant proprietors, and particularly 
in parts of Germany and France. The 
governments of Bavaria and Nassau 
have thought it necessary to impose 
a legal limit to subdivision, and the 
Prussian Government unsuccessfully 
proposed the same measure to the 
Estates of its Phenish Provinces. But 
I do not think it will anywhere be 
found that the petite culture is the 
system of the peasants, and the grande 
cidture that of the great landlords: 

* Rural Economy of France, p. 455. 

f P. 117. See, for facts of a similar ten¬ 
dency, pp. 14l, 250, and other passagesof the 
same important treatise ; which, on the other 
hand, equally abounds with evidence of the 
mischievous effect of subdivision when too 
minute, or when the nature of the soil and 
of its products is not suitable to it. 


181 

on the contrary, wherever the small 
properties are divided among too many 
proprietors, I believe it to be true 
that the large properties also are par¬ 
celled out among too many farmers, 
and thatithe cause is the same in both 
cases, a backward state of capital, 
skill, and agricultural enterprise. There 
is reason to believe that the subdivi¬ 
sion in France is not more excessive 
than is accounted for by this cause; 
that it is diminishing, not increasing; 
and that the terror expressed in some 
quarters at the progress of the rnor - 
cellement, is one of the most ground¬ 
less of real or pretended panics.* 

If peasant properties have any effect 
in promoting subdivision beyond the 
degree which corresponds to the agri- 

* Mr. Lalng, in his latest publication, 
“ Observations on the Social and Political 
State of the European People in 1848 and 
1849,” a book devoted to the glorification of 
England, and the disparagement of every¬ 
thing elsewhere which others, or even he 
himself informer works, had thought worthy 
of praise, argues that “ although the land 
itself is not divided and subdivided” on the 
death of the proprietor, “the value of the 
land is, and with effects almost as prejudicial 
to social px*ogress. The value of each share 
becomes a debt or burden upon the land.” 
Consequently the condition of the agricul¬ 
tural population is retrograde ; “ each gene¬ 
ration is worse off than the preceding one, 
although the land is neither less nor more 
divided, nor worse cultivated.” And this he 
gives as the explanation of thegreat indebted¬ 
ness of the small landed proprietors in 
France (pp. 97-9). If these statements were 
correct, they would invalidate all which Mr. 
Laing affirmed so positively in other writings, 
and repeats in this, respecting the peculiar 
efficacy of the possession of land in pre¬ 
venting over-population. But he is entirely 
mistaken as to the matter of fact. In the 
only country of which he speaks from actual 
residence, Norway, he does not pretend that 
the condition of the peasant proprietors is 
deteriorating. The facts already cited prove 
that in respect to Belgium, Germany, and 
Switzerland, the assertion is equally wide of 
the mark; and what has been shown re¬ 
specting the slow increase of population in 
France, demonstrates that if the condition 
of the French peasantry was deteriorating, 
it could not be from the cause supposed by 
Mr. Laing. The truth I believe to be that 
in every country without exception, ift which 
peasant properties prevail, the condition of 
the people is improving, the produce of the 
land and even its fertility increasing, and 
from the larger surplus which remains after 
feeding the agricultural classes, the towns 
are augmenting both in population and in 
the well-being of their inhabitants. 




182 BOOK II. CHAPTER VII. § 5. 


cultural practices of tlie country, and 
•which is customary on its large estates, 
the cause must lie in one of the salu¬ 
tary influences of the system; the 
eminent degree in which it promotes 
. providence on the part of those who, 
not being yet peasant proprietors, hope 
to become so. In England, where the 
agricultural labourer has no investment 
for his savings but the savings bank, 
and no position to which he can rise by 
any exercise of economy, except per¬ 
haps that of a petty shopkeeper, with its 
chances of bankruptcy, there is nothing 
at all resembling the intense spirit of 
thrift which takes possession of one 
who, from being a day labourer, can 
raise himself by saving to the condi¬ 
tion of a landed proprietor. According 
to almost all authorities, the real cause 
of the morcellement is the higher price 
which can be obtained for land by 
selling it to the peasantry, as an in¬ 
vestment for their small accumulations, 
than by disposing of it entire to some 
rich purchaser who has no object but 
to live on its income without improving 
it. The hope of obtaining such an 
investment is the most powerful of in¬ 
ducements, to those who are without 
land, to practise the industry, fru¬ 
gality, and self-restraint, on which their 
success in this object of ambition is 
dependent. 

As the result of this enquiry into 
the direct operation and indirect in¬ 
fluences of peasant properties, I con¬ 
ceive it to be established, that there is 
no necessary connexion between this 
form of landed property and an im¬ 
perfect state of the arts of production ; 
that it is favourable in quite as many 
respects as it is unfavourable, to the 
most effective use of the powers of the 
soil; that no other existing state of 
agricultural economy has so beneficial 
an effect on the industry, the intelli¬ 
gence, the frugality, and prudence of 
the population, nor tends on the whole 
so much to discourage an improvident 
increase of their numbers; and that 
no existing state, therefore, is on the 
whole so favourable, both to their 


moral and their physical welfare. 
Compared with the English system of 
cultivation by hired labour, it must be 
regarded as eminently beneficial to the 
labouring class.* We are not on the 
present occasion called upon to com¬ 
pare it with the joint ownership of the 
land by associations of labourers. 

* French history strikingly confirms these 
conclusions. Three times during the course 
of ages the peasantry have been purchasers 
of land; and these times immediately pre¬ 
ceded the three principal eras of French 
agricultural prosperity. 

“ In the worst times,” says the historian 
Michelet (The People, Parti, ch. 1), “the 
times of universal poverty, when even the 
rich are poor and obliged to sell, the poor are 
enabled to buy: no other purchaser pre¬ 
senting himself, the peasant in rags arrives 
with his piece of gold, and acquires a little 
bit of land. These moments of disaster in 
which the peasant was able to buy land at a 
low price, have always been followed by a 
sudden gush of prosperity which people could 
not account for. Towards 1500, for example, 
when France, exhausted by Louis XI., 
seemed to be completing its ruinin Italy, the 
noblesse who went to the wars were obliged 
to sell: the land, passing into new hands, 
suddenly began to flourish; men began to 
labour and to build. This happy moment, 
in the style of courtly historians, was called 
the pood Louis XII. 

“ Unhappily it did not last long. Scarcely 
had the land recovered itself when the tax- 
collector fell upon it; the wars of religion 
followed, and seemed to rase everything to 
the ground; with horrible miseries, dreadful 
famines, in which mothers devoured their 
children. Who W'ould believe that the coun¬ 
try recovered from this? Scarcely is the war 
ended, when from the devastated fields, and 
the cottages still black with the flames, comes 
forth the hoard of the peasant. He buys ; 
in ten years, France wears a new face ; in 
twenty or thirty, all possessions have doubled 
and trebled in value. This moment, again 
baptized by a royal name, is called the good 
Henry IV. and the great ILichelieu." 

Of the third era it is needless again to 
speak ; it was that of the Revolution. 

Whoever w r ould study the reverse of the 
picture, may compare these historic periods, 
characterized by the dismemberment of 
large and the construction of small proper¬ 
ties, with the wide-spread national suffering 
which accompanied, and the permanent de¬ 
terioration of the condition of the labouring 
classes wdiich followed, the “clearing” away 
of small yeomen to make room for large 
grazing farms, which was the grand econo¬ 
mical event of English history during the 
sixteenth century. 



METAYERS. 


183 


CHAPTER VIII. 


OP MET 

§ 1. From the case in which the 
produce of land and labour belongs 
undividedly to the labourer, we proceed 
to the cases in which it is divided, hut 
between two classes only, the labourers 
and the landowners ; the character of 
capitalists merging in the one or the 
other, as the case may he. It is pos¬ 
sible indeed to conceive that there 
might be only two classes of persons 
to share the produce, and that a class 
of capitalists might be one of them ; 
the character of labourer and that of 
landowner being united to form the 
other. This might occur in two ways. 
The labourers, though owning the 
land, might let it to a tenant, and 
work under him as hired servants. 
But this arrangement, even in the 
very rare cases which could give rise 
to it, would not require any particular 
discussion, since it would not differ in 
any material respect from the three¬ 
fold system of labourers, capitalists, 
and landlords. The other case is the 
not uncommon one, in which a peasant 
proprietor owns and cultivates the 
land, but raises the little capital re¬ 
quired, by a mortgage upon it. 
Neither does this case present any 
important peculiarity. There is but 
one person, the peasant himself, who 
has any right or power of interference 
in the management. He pays a fixed 
annuity as interest to a capitalist, as 
he pays another fixed sum in taxes 
to the government. Without dwelling 
further on these cases, we pass to those 
which present marked features of pecu¬ 
liarity. 

When the two parties sharing in 
the produce are the labourer or 
labourers and the landowner, it is not 
a very material circumstance in the 
case, which of the two furnishes the 
stock, or whether, as sometimes hap¬ 
pens, they furnish it, in a determinate 
proportion, between them. The essen¬ 
tial difference does not lie in this, 


'AYERS. 

hut in another circumstance, namely, 
whether the division of the produce 
between the two is regulated by 
custom or by competition. We will 
begin with the former case ; of which 
the metayer culture is the principal, 
and in Europe almost the sole, example. 

The principle of the metayer system 
is that the labourer, or peasant, makes 
his engagement directly with the land- 
owner, and pays, not a fixed rent, 
either in money or in kind, but a cer¬ 
tain proportion of the produce, or 
rather of what remains of the produce 
after deducting what is considered ne¬ 
cessary to keep up the stock. The 
proportion is usually, as the name im¬ 
ports, one-half; but in several districts 
in Italy it is two-thirds. Respecting 
the supply of stock, the custom varies 
from place to place; in some places 
the landlord furnishes the whole, in 
others half, in others some particular 
part, as for instance the cattle and 
seed, the labourer providing the im¬ 
plements.* “This connexion,” says 

* In France, before the Revolution, ac¬ 
cording to Arthur Young (i. 403) there was 
great local diversity in this respect. In 
Champagne, “ the landlord commonly finds 
half the cattle and half the seed, and the 
metayer, labour, implements, and taxes; 
but in some districts the landlord bears a 
share of these. In Roussillon, the landlord 
pays half the taxes; and in Guienne, from 
Auch to Fleuran, many landlords pay all. 
Near Aguillon, on the Garonne, the metayers 
furnish half the cattle. At Nangis, in the 
Isle of France, I met with an agreement for 
the landlord to furnish live stock, implements, 
harness, and taxes; the metayer found labour 
and his own capitation tax: the landlord 
repaired the house and gates; the metayer 
the windows : the landlord provided seed the 
first year, the metayer the last; in the inter¬ 
vening years they supply half and half. In 
the Bourbonnois the landlord finds all sorts 
of live stock, yet the metayer sells, changes, 
and buys at his will; the steward keeping 
an account of these mutations, for the land¬ 
lord has half the product of sales, and pays 
half the purchases.” In Piedmont, he says, 
“ the landlord commonly pays the taxes and 
repairs the buildings, and the tenant provides 
cattle, implements, and seed.” (II. 151.) 



184 BOOK II. CHAPTER VIII. § 2. 


Sismondi, speaking chiefly of Tus¬ 
cany,* “ is often the subject of a con¬ 
tract, to define certain services and 
certain occasional payments to which 
the metayer binds himself; neverthe¬ 
less the differences in the obligations 
of one such contract and another are 
inconsiderable ; usage governs alike all 
these engagements, and supplies the 
stipulations which have not been ex¬ 
pressed : and the landlord who at¬ 
tempted to depart from usage, who 
exacted more than his neighbour, who 
took for the basis of the agreement 
anything hut the equal division of the 
crops, would render himself so odious, 
he would he so sure of not obtaining a 
metayer who was an honest man, that 
the contract of all the metayers may 
be considered as identical, at least in 
each province, and never gives rise to 
any competition among peasants in 
search of employment, or any offer to 
cultivate the soil on cheaper terms 
than one another.” To the same effect 
Chateauvieux,t speaking of the me¬ 
tayers of Piedmont. “They consider 
it” (the farm) “as a patrimony, and 
never think of renewing the lease, but 
go on from generation to generation, on 
the same terms, without writings or 
registries.”! 

§ 2. When the partition of the 
produce is a matter of fixed usage, not 
of varying convention, political eco¬ 
nomy has no laws of distribution to 
investigate. It has only to consider, 

* Studies in Political Economy, Essay VI. 
On the Condition of the Cultivators in Tus¬ 
cany. 

t Letters from Italy. I quote from Dr. 
Rigby’s translation, (p. 22.) 

X This virtual fixity of tenure is not how¬ 
ever universal even in Italy; and it is to its 
absence that Sismondi attributes the inferior 
condition of the metayers in some provinces 
of Naples, in Lucca, and in the Riviera of 
Genoa ; where the landlords obtain a larger 
(though still a fixed) share of the produce. 
In those countries the cultivation is splendid, 
but the people wretchedly poor. “ The same 
misfortune would probably have befallen the 
people of Tuscany if public opinion did not 
protect the cultivator; but a proprietor 
would not dare to impose conditions unusual 
in the country, and even in changing one 
metayer for another, he alters nothing in the 
terms of the engagement.” New Principles 
of Political Economy, book iii. ch. 5. 


as in the ease of peasant proprietors, 
the effects of the system, first, on the 
condition of the peasantry, morally 
and physically, and secondly, on the 
efficiency of the labour. In both these 
particulars the metayer system has the 
characteristic advantages of peasant 
properties, but has them in a less de¬ 
gree. The metayer has less motive 
to exertion than the peasant proprietor, 
since only half the fruits of his indus¬ 
try, instead of the whole, are his own. 
But he has a much stronger motive 
than a day labourer, who has no other 
interest in the result than not to be 
dismissed. If the metayer cannot be 
turned out except for some violation of 
his contract, he has a stronger motive 
to exertion than any tenant-farmer 
who has not a lease. The metayer is 
at least his landlord’s partner, and a 
half-sharer in their joint gains. Where, 
too, the permanence of his tenure is 
guaranteed by custom, he acquires 
local attachments, and much of the 
feelings of a proprietor. I am sup¬ 
posing that this half produce is suffi¬ 
cient to yield him a comfortable 
support. Whether it is so, depends 
(in any given state of agriculture) on 
the degree of subdivision of the land ; 
which depends on the operation of the- 
population principle. A multiplication 
of people, beyond the number that can 
be properly supported on the land or 
taken off by manufactures, is incident- 
even to a peasant proprietary, and of 
course not less hut rather more incident 
to a metayer population. The ten¬ 
dency, however, which we noticed in 
the proprietary system, to promote 
prudence on this point, is in no small 
degree common to it with the metayer 
system. There, also, it is a matter of 
easy and exact calculation whether a 
family can he supported or not. If it 
is easy to see whether the owner of the 
whole produce can increase the pro¬ 
duction so as to maintain a greater 
number of persons equally well, it is a 
not less simple problem whether the- 
owner of half the produce can do so.* 

* M. Bastiat affirms that even in 
France, incontestably the least favourable 
example of the metayer system, its effect 
in repressing population is conspicuous. 
“It is a well-ascertained fact that the 



METAYERS. 


There is one check which this system 
seems to offer, over and above those 
held out even by the proprietary 
system; there is a landlord, who may 
exert a controlling power, by refusing 
his consent to a subdivision. I do not, 
however, attach great importance to 
this check, because the farm may be 
loaded with superfluous hands without 
being subdivided; and because, so long 
as the increase of hands increases the 
gross produce, which is almost always 
the case, the landlord, who receives 
half the produce, is an immediate 
gainer, the inconvenience falling only 
on the labourers. The landlord is no 
doubt liable in the end to suffer from 
their poverty, by being forced to make 
advances to them, especially in bad 
seasons; and a foresight of this ulti¬ 
mate inconvenience may operate bene¬ 
ficially on such landlords as prefer 
future security to present profit. 

The characteristic disadvantage of 
the metayer system is very fairly stated 
by Adam Smith. After pointing out 
that metayers “ have a plain interest 
that the whole produce should be as 
great as possible, in order that their 
own proportion may be so,” he con¬ 
tinues,* “ it could never, however, be 
the interest of this species of culti¬ 
vators to lay out, in the further im¬ 
provement of the land, any part of the 
little stock which they might save 

tendency to excessive multiplication is 
chiefly manifested in the class who live on 
wages. Over these the forethought which 
retards marriageshas little operation,because 
the evils which flow from excessive compe¬ 
tition appear to them only very confusedly, 
and at a considerable distance. It is, there¬ 
fore, the most advantageous condition of a 
people to be so organized as to contain no 
regular class of labourers for hire. In me¬ 
tayer countries, marriages are principally 
determined by the demands of cultivation ; 
they increase when, from whatever cause, 
the metairies offer vacancies injurious to 
production; they diminish when the places 
are filled up. A fact easily ascertained, the 
propoi’tion between the size of the farm and 
the number of hands, operates like fore¬ 
thought, and with greater effect. We find, 
accordingly, that when nothing occurs to 
makean opening for a superfluous population, 
numbers remain stationary: as is seen in 
our southern departments.” Considerations 
on Metayage, in the Journal des Economistes 
for February 1846. 

* Wealth of Nations, book iii. ch. 2. 


185 

from their own share of the produce, 
because the lord, who laid out nothing, 
was to get one half of whatever it 
produced. The tithe, which is but a 
tenth of the produce, is found to be a 
very great hindrance to improvement. 
A tax, therefore, which amounted to 
one-half, must have been an effectual 
bar to it. It might be the interest of 
a metayer to make the land produce 
as much as could be brought out of it' 
by means of the stock furnished by the 
proprietor; but it could never be his 
interest to mix any part of his own. 
with it. In France, where five parts 
out of six of the whole kingdom are 
said to be still occupied by this species 
of cultivators, the proprietors complain 
that their metayers take every oppor¬ 
tunity of employing the master’s cattle 
rather in carriage than in cultivation: 
because in the one case they get the 
whole profits to themselves, in the other 
they share them with their landlord.” 

It is indeed implied in the very na¬ 
ture of the tenure, that all improve¬ 
ments which require expenditure of 
capital, must be made with the capital 
of the landlord. This, however, is es¬ 
sentially the case even in England,, 
whenever the farmers are tenants-at- 
will: or (if Arthur Young is right) 
even on a “nine years lease.” If the 
landlord is willing to provide capital 
for improvements, the metayer has the 
strongest interest in promoting them, 
since half the benefit of them will ac¬ 
crue to himself. As however the per¬ 
petuity of tenure which, in the case 
we are discussing, he enjoys by custom, 
renders his consent a necessary condi¬ 
tion ; the spirit of routine, and dislike 
of innovation, characteristic of an agri¬ 
cultural people when not corrected by 
education, are no doubt, as the advo¬ 
cates of the system seem to admit, a 
serious hindrance to improvement. 

§ 3. The metayer system has met 
with no mercy from English authori¬ 
ties. “ There is not one word to be 
said in favour of the practice,” says 
Arthur Young, * “ and a thousand ar¬ 
guments that might be used against 
it. The hard plea of necessity can 
* Travels, vol. i. pp. 404-5, 




BOOK II. CHAPTER VIII. § 3. 


186 

alone be urged in its favour; the po¬ 
verty of the farmers being so great, 
that the landlord must stock the farm, 
nr it could not be stocked at all: this 
is a most cruel burthen to a proprietor, 
who is thus obliged to run much of the 
hazard of farming in the most dan¬ 
gerous of all methods, that of trusting 
liis property absolutely in the hands 
of people who are generally ignorant, 
many careless, and some undoubtedly 
wicked. ... In this most miserable 
of all the modes of letting land, the 
defrauded landlord receives a con¬ 
temptible rent; the farmer is in the 
lowest state of poverty; the land is 
miserably cultivated; and the nation 
suffers as severely as the parties them¬ 
selves. . . . Wherever* * * § this system 
prevails, it may be taken for granted 
that a useless and miserable population 
is found. . . . Wherever the country 
(that I saw) is poor and unwatered, 
in the Milanese, it is in the hands of 
metayers:” they are almost always 
in debt to their landlord for seed 
or food, and “their condition is 
more wretched than that of a day 
labourer. . . . Theref are but few 
districts” (in Italy) “ where lands 
are let to the occupying tenant at 
a money-rent; but wherever it is 
found, their crops are greater; a clear 
proof of the imbecility of the metaying 
system.” “ Wherever it” (the metayer 
system) “ has been adopted,” says 
Mr. M‘Cullocli,:j: “ it has put a stop 
to all improvement, and has reduced 
the cultivators to the most abject po¬ 
verty.” Mr. Jones § shares the common 
opinion, and quotes Turgot and Destutt- 
Tracy in support of it. The impression, 
however, of all these writers (notwith¬ 
standing Arthur Young’s occasional 
references to Italy) seems to be chiefly 
derived from France, and France before 
the Revolution. || Now the situation of 
French metayers under the old regime 

* Travels,\ ol. ii. 151-3. 
t Ibid. ii. 217. 

J Principles of Political Economy, 3rd ed. 

p. 471. 

§ Essay on the Distribution of Wealth, pp. 
102-4. 

11 M. do Tracy is partially an exception, 
inasmuch as his experience reaches lower 
down than the revolutionary period: but he 


by no means represents the typical 
form of the contract. It is essential 
to that form, that the proprietor pays 
all the taxes. But in France the ex¬ 
emption of the noblesse from direct 
taxation had led the Government to 
throw the whole burthen of their ever- 
increasing fiscal exactions upon the 
occupiers: and it is to these exactions 
that Turgot ascribed the extreme 
wretchedness of the metayers: a 
wretchedness in some cases so exces¬ 
sive, that in Limousin and Angou- 
mois (the provinces which he admi¬ 
nistered) they had seldom more, ac¬ 
cording to him, after deducting all 
burthens, than from twenty-five to 
thirty livres (20 to 24 shillings) per 
head for their whole annual consump¬ 
tion : “I do not mean in money, but 
including all that they consume in 
kind from their own crops.”* When 
we add that they had not the virtual 
fixity of tenure of the metayers of Italy, 
(“in Limousin,” says Arthur Young, 

“ the metayers are considered as little 
better than menial servants, removable 
at pleasure, and obliged to conform in 
all things to the will of the landlords,”) 

admits (as Mr. Jones has himself stated in 
another place) that he is acquainted only 
with a limited district, of great subdivision 
and unfertile soil. 

M. Passy is of opinion, that a French pea¬ 
santry must be in indigence and the country 
badly cultivated on a metayer system, be¬ 
cause the proportion of the produce claim¬ 
able by the landlord is too high; it being 
only in more favourable climates that any 
land, not of the most exuberant fertility, 
can pay half its gross produce in rent, and 
leave enough to peasant farmers to enable 
them to grow successfully the more expen¬ 
sive and valuable products of agriculture. 
(On Systems of Culture, p. 35.) This is an 
objection only to a particular numerical pro¬ 
portion, which is indeed the common one, 
but is not essential to the system. 

* See the “ Memoir on the Surcharge of 
Taxes suffered by the G enerality of Limoges, 
addressed to the Council of State in I7s6,” 
pp. 260-304 of the fourth volume of Turgot’s 
Works. The occasional engagements of 
landlords (as mentioned by Arthur Young) 
to pay a part of the taxes, were, according 
to Turgot, of recent origin, under the com¬ 
pulsion of actual necessity. “ The proprietor 
only consents to it when he can find no me¬ 
tayer on other terms; consequently, even in 
that case, the metayer is always reduced to 
what is barely sufficient to prevent him from 
dying of hunger.” (p. 275), 

t Vol. i. p. 404. 





METAYERS. 


it is evident that their case affords no 
argument against the metayer system 
in its better form. A population who 
could call nothing their own—who, like 
the Irish cottiers, could not in any 
contingency be w T orse oft'—had nothing 
to restrain them from multiplying, and 
subdividing the land, until stopped by 
actual starvation. 

We shall find a very different pic¬ 
ture, by the most accurate authorities, 
of the metayer cultivation of Italy. In 
the first place, as to subdivision. In 
Lombardy, accordingtoChateauvieux*, 
there are few farms which exceed sixty 
acres, and few which have less than ten. 
These farms are all occupied by metay¬ 
ers at half profit. They invariably dis¬ 
play “ an extentf and a richness in build¬ 
ings rarely known in any other country 
In Europe.” Their plan “affords the 
greatest room with the least extent of 
building; is best adapted to arrange 
and secure the crop; and is, at the 
same time, the most economical, and 
the least exposed to accidents by fire.” 
The court-yard “ exhibits a whole so 
regular and commodious, and a system 
of such care and good order, that our 
dirty and ill-arranged farms can con¬ 
vey no adequate idea of.” The same 
description applies to Piedmont. The 
rotation of crops is excellent. “ I 
should thinkf no country can bring so 
large a portion of its produce to market 
as Piedmont.” Though the soil is not 
naturally very fertile, “ the number of 
cities is prodigiously great.” The 
agriculture must, therefore, be emi¬ 
nently favourable to the net as well 
as to the gross produce of the land. 
“ Each plough works thirty-two acres 
in the season. . . . Nothing can be 
more perfect or neater than the hoeing 
and moulding up the maize, when in 
full growth, by a single plough, with 
a pair of oxen, without injury to a 
single plant, while all the weeds are 
effectually destroyed.” So much for 
agricultural skill. “ Nothing can be 
so excellent as the crop which precedes 
and that which follows it.” The 
wheat “ is thrashed by a cylinder, 

* Letters from Italy, translated by liigby, 
p. 16. 

t Ibid. pp. 19, 20. % Ibid - PP- 24-31. 


187 

drawn by a horse, and guided by a boy, 
while the labourers turn over the straw 
with forks. This process lasts nearly 
a fortnight: it is quick and economical, 

and completely gets out the grain. 

In no part of the world are the economy 
and the management of the land better 
understood than in Piedmont, and 
this explains the phenomenon of its 
great population and immense export 
of provisions.” All this under metayer 
cultivation. 

Of the valley of the Arno, in its 
whole extent, both above and below 
Florence, the same writer thus speaks ;* 
—“Forests of olive-trees covered the 
lower parts of the mountains, and by 
their foliage concealed an infinite 
number of small farms, which peopled 
these parts of the mountains: chest¬ 
nut-trees raised their heads on the 
higher slopes, their healthy verdure 
contrasting with the pale tint of the 
olive-trees, and spreading a brightness 
over this amphitheatre. The road was 
bordered on each side with village- 
houses, not more than a hundred paces 

from each other.They are 

placed at a little distance from the 
road, and separated from it by a wall, 
and a terrace of some feet in extent. On 
the wall are commonly placed many 
vases of antique forms, in which 
flowers, aloes, and young orange-trees 
are growing. The house itself is com¬ 
pletely covered with vines. 

Before these houses we saw groups of 
peasant females dressed in white linen, 
silk corsets, and straw hats ornamented 

with flowers.These houses 

being so near each other, it is evident 
that the land annexed to them must be 
small, and that property, in these 
valleys, must be very much divided: 
the extent of these domains being 
from three to ten acres. The land lies 
round the houses, and is divided into 
fields by small canals, or rows of trees, 
some of which are mulberry-trees, 
but the greatest number poplars, the 
leaves of which are eaten by the cattle. 

Each tree supports a vine. 

These divisions, arrayed in oblong 
squares, are large enough to be cul¬ 
tivated by a plough without wheels, 
* Pp. 78—9. 








188 BOOK II. CHAPTER VIII. § 3. 


and a pair of oxen. There is a pair of 
oxen between ten or twelve of the 
farmers; they employ them succes¬ 
sively in the cultivation of all the farms. 
.... Almost every farm maintains a 
well-looking horse, which goes in a 
small two-wheeled cart, neatly made, 
and painted red ; they serve for all the 
purposes of draught for the farm, and 
and also to convey the farmer’s daugh¬ 
ters to mass and to balls. Thus, on 
holidays, hundreds of these little carts 
are seen flying in all directions, carry¬ 
ing the young women, decorated with 
flowers and ribbons.” 

This is not a picture of poverty; and 
so far as agriculture is concerned, it 
effectually redeems metayer cultiva¬ 
tion, as existing in these countries, 
from the reproaches of English writers ; 
but with respect to the condition of 
the cultivators, Chateauvieux’s testi¬ 
mony is, in some points, not so favour¬ 
able. “ It is* neither the natural ferti¬ 
lity of the soil, nor the abundance 
which strikes the eye of the traveller, 
which constitute the well-being of its 
inhabitants. It is the number of in¬ 
dividuals among whom the total pro¬ 
duce is divided, which fixes the portion 
that each is enabled to enjoy. Here it 
is very small. I have thus far, indeed, 
exhibited a delightful country, well 
watered, fertile, and covered with a 
perpetual vegetation ; I have shown it 
divided into countless inclosures, 
which, like so many beds in a garden, 
display a thousand varying produc¬ 
tions ; I have shown, that to all these 
inclosures are attached well-built 
houses, clothed with vines, and deco¬ 
rated with flowers ; but, on entering 
them, we find a total want of all the 
conveniences of life, a table more than 
frugal, and a general appearance of 
privation.” Is not Chateauvieux here 
unconsciously contrasting the condition 
of the metayers with that of the 
farmers of other countries, when the 
proper standard with which to com¬ 
pare it is that of the agricultural day- 
labourers ? 

Arthur Young says,+ “ I was assured 
that these metayers are (especially near 

* Pp. 73-6. 

t Travels, vol. ii. p. 156. 


Florence) much at their ease; that on 
holidays they are dressed remarkably 
well, and not without objects of luxury, 
as silver, gold, and silk : and live well, 
on plenty of bread, wine, and legumes. 
In some instances this may possibly be 
the case, but the general fact is con¬ 
trary. It is absurd to think that me¬ 
tayers, upon such a farm as is cul¬ 
tivated by a pair of oxen, can live at 
their ease; and a clear proof of their 
poverty is this, that the landlord, who 
provides half the live stock, is often 
obliged to lend the peasant money to 
procure his half..The meta¬ 

yers, not in the vicinity of the city, are 
so poor, that landlords even lend them 
corn to eat: their food is black bread, 
made of a mixture with vetches ; and 
their drink is very little wine, mixed 
with water, and called aquarolle ; meat 
on Sundays only; their dress very 
ordinary.” Mr. Jones admits the su¬ 
perior comfort of the metayers near. 
Florence, and attributes it partly to 
straw-plaiting, by which the women of 
the peasantry can earn, according to 
Chateauvieux,* from fifteen to twenty 
pence a-day. But even this fact tells 
in favour of the metayer system ; for 
in those parts of England in which 
either straw-plaiting or lace-making is 
carried on by the women and children 
of the labouring class, as in Bedford¬ 
shire and Buckinghamshire, the con¬ 
dition of the class is not better, but 
rather worse than elsewhere, the wages 
of agricultural labour being depressed 
by a full equivalent. 

In spite of Chateauvieux’s state¬ 
ment respecting the poverty of the 
metayers, his opinion, in respect to 
Italy at least, is given in favour of the 
system. “ It occupiesf and constantly 
interests the proprietors, which is never 
the case with great proprietors who 
lease their estates at fixed rents. It 
establishes a community of interests, 
and relations of kindness between the 
proprietors and the metayers ; a kind¬ 
ness which I have often witnessed, and 
from which result great advantages in 
the moral condition of society. The 
proprietor, under this system, always 

* Letters from Italy , p. 75. 
t Ibid. pp. 295-6. 




METAYERS. 


interested in the success of the crop, 
never refuses to make an advance 
upon it, which the land promises to 
repay with interest. It is by these 
advances, and by the hope thus in¬ 
spired, that the rich proprietors Oi 
land have gradually perfected the 
whole rural economy of Italy. It is 
to them that it owes the numerous 
systems of irrigation which water its 
soil, as also the establishment of the 
terrace culture on the hills: gradual 
but permanent improvements, which 
common peasants, for want of means, 
could never have effected, and which 
could never have been accomplished 
by the farmers, nor by the great 
proprietors who let their estates at 
fixed rents, because they are not 
sufficiently interested. Thus the in¬ 
terested system forms of itself that 
alliance between the rich proprietor, 
whose means provide for the improve¬ 
ment of the culture, and the metayer, 
whose care and labours are directed, 
by a common interest, to make the 
most of these advances.’’ 

Rut the testimony most favourable 
to the system is that of Sismondi, 
which has the advantage of being 
specific, and from accurate knowledge; 
his information being not that of a 
traveller, but that of a resident pro¬ 
prietor, intimately acquainted with 
rural life. His statements apply to 
Tuscany generally, and more par¬ 
ticularly to the Val di Nievole, in 
which his own property lay, and which 
is not within the supposed privileged 
circle immediately round Florence. It 
is one of the districts in which the 
size of farms appears to be the smallest. 
The following is his description of the 
dwellings and mode of life of the me¬ 
tayers of that district.* 

“ The house, built of good walls with 
lime and mortar, has always at least 
one story, sometimes two, above the 
ground floor. On the ground floor are 
generally the kitchen, a cowhouse for 
twohorned cattle, and the storehouse, 
which takes its name, tinaia , from the 
large vats (tini) in which the wine is 
put to ferment, without any pressing : 

* From his Sixth Essay, formerly re¬ 
ferred to. 


189 

it is there also that the metayer locks 
up his casks, his oil, and his grain. 
Almost always there is also a shed 
supported against the house, where he 
can work under cover to mend his 
tools, or chop forage for his cattle. On 
the first and second stories are two, 
three, and often four bedrooms. The 
largest and most airy of these is 
generally destined by the metayer, in 
the months of May and June, to the 
bringing up of silkworms. Great 
chests to contain clothes and linen, 
and some wooden chairs, are the chief 
furniture of the chambers; but a 
newly-married wife always brings with 
her a wardrobe of walnut wood. The 
beds are uncurtained and unroofed, but 
on each of them, besides a good pail¬ 
lasse filled with the elastic straw of 
the maize plant, there are one or two 
mattresses of wool, or, among the 
poorest, of tow, a good blanket, sheets 
of strong hempen cloth, and on the 
best bed of the family a coverlet of silk 
padding, which is spread on festival 
days. The only fireplace is in the 
kitchen ; and there also is the great 
wooden table where the family dines, 
and the benches; the great chest 
which serves at once for keeping the 
bread and other provisions, and for 
kneading; a tolerably complete though 
cheap assortment of pans, dishes, and 
earthenware plates: one or two metal 
lamps, a steelyard, and at least two 
copper pitchers for drawing and hold¬ 
ing water. The linen and the work- 
ing clothes of the family have all been 
spun by the women of the house. The 
clothes, both of men and of women, 
are of the stuff called mezza lana when 
thick, viola when thin, and made of a 
coarse thread of hemp or tow, tilled up 
with cotton or wool; it is dried by the 
same women by whom it was spun. It 
would hardly be believed what a quan¬ 
tity of cloth and of mezza lana the 
peasant "women are able to accumu¬ 
late by assiduous industry ; how many 
sheets there are in the store; what a 
number of shirts, jackets, trowsers, 
petticoats, and gowns are possessed by 
every member of the family. By way 
of example I add in a note the inven¬ 
tory of the peasant family best known 




; BOOK II. CHAPTER VIII. § 3. 


190 

to me : it is neither one of the richest 
nor of the poorest, and lives happily by 
its industry on half the produce of less 
than ten arpents of land.* The young 
women had a marriage portion of fifty 
crowns, twenty paid down, and the rest 
by instalments of two every year. The 
Tuscan crown is worth six francs 
[45. IOcZJ. The commonest marriage 
portion of a peasant girl in the other 
parts of Tuscany, where the metairies 
are larger, is 100 crowns, GOO francs.” 

Is this poverty, or consistent with 
poverty? When a common, M. de 
Sismondi even says the common, mar¬ 
riage portion of a metayer’s daughter 
is 24Z. English money, equivalent to 
at least 50 1. in Italy and in that rank 
of life; when one whose dowry is only 
half that amount, has the wardrobe 
described, which is represented by 
Sismondi as a fair average; the class 
must be fully comparable, in general 
condition, to a large proportion even of 
capitalist farmers in other countries ; 
and incomparably above the day- 
labourers of any country, except a new 
colony, or the United States. Very 
little can be inferred, against such evi¬ 
dence, from a traveller’s impression of 
the poor quality of their food. Its in¬ 
expensive character may be rather the 
effect of economy than of necessity. 
Costly feeding is not the favourite 
luxury of a southern people; their 
diet in all classes is principally vege¬ 
table, and no peasantry on the 
Continent has the superstition of the 
English labourer respecting white 

* Inventory of the trousseau of Jane, 
daughter of Yalente Papini, on her marriage 
with Giovacchino Landi, the 29th of April 
1835, at Porta Yecchia, near Pescia: 

“ 28 shifts, 7 best dresses (of particular 
fabrics of silk), 7 dresses of printed cotton, 
2 winter working dresses (mezza lana ), 3 
summer working dresses and petticoats 
( molu ), 3 white petticoats, 5 aprons of printed 
linen, 1 of black silk, 1 of black merinos, 9 
coloured working aprons ( mola ), 4 white, 8 
coloured, and 3 silk, handkerchiefs, 2 em¬ 
broidered veils and one of tulle, 3 towels, 14 
pairs of stockings, 2 hats (one of felt, the 
other of fine straw) ; 2 cameos set in gold, 2 
golden earrings, 1 chaplet with two Roman 
silver crowns, 1 coral necklace with its cross 
of gold. . . . All the richer married women 
of the class have, besides, the veste di seta, 
the great holiday dress, which they only wear 
four or five times in their lives.” 


bread. But the nourishment of the 
Tuscan peasants, according to Sis¬ 
mondi, “ is wholesome and various: 
its basis is an excellent wheaten 
bread, brown, but pure from bran and 
from all mixture.” In the bad 
season, they take but two meals a 
day: at ten in the morning they 
eat their pollenta, at the beginning 
of the night their soup, and after 
it bread with a relish of some sort 
(compcinatico). In summer they have 
three meals, at eight, at one, and in 
the evening; but the fire is lighted 
only once a day, for dinner, which 
consists of soup, and a dish of salt meat 
or dried fish, or haricots, or greens, 
which arc eaten with bread. Salt 
meat enters in a very small quantity 
into this diet, for it is reckoned that 
forty pounds of salt pork per head 
suffice amply for a year’s provision; 
twice a week a small piece of it is put 
into the soup. On Sundays they have 
always on the table a dish of fresh 
meat, but a piece which weighs only a 
pound or a pound and a half suffices 
for the whole family, however numerous 
it may be. It must not be forgotten 
that the Tuscan peasants generally 
produce olive oil for their own con¬ 
sumption : they use it not only for 
lamps, but as seasoning to all the 
vegetables prepared for the table, 
which it renders both more savoury- 
and more nutritive. At breakfast 
their food is bread, and sometimes 
cheese and fruit; at supper, bread and 
salad. Their drink is composed of the 
inferior wine of the country, the vinella 
or piquette made by fermenting in 
water the pressed skins of the grapes. 
They always, however, reserve a little 
of their best wine for the day when 
they thresh their corn, and for some 
festivals which are kept in families. 
About fifty bottles of vinella per annum, 
and five sacks of wheat (about 1000 
pounds of bread) arc considered as the 
supply necessary for a full grown man.” 

The remarks of Sismondi on the 
moral influences of this state of so¬ 
ciety are not less worthy of attention. 
The rights and obligations of the 
metayer being fixed by usage, and all 
taxes and rates being paid by the pro- 



METAYERS. 


prietor, “the metayer has the advan¬ 
tages of landed property without the 
burthen of defending it. It is the 
landlord to whom, with the land, be¬ 
long all its disputes: the tenant lives 
in peace with all his neighbours ; be¬ 
tween him and them there is no motive 
for rivality or distrust, he preserves a 
good understanding with them, as well 
as with his landlord, with the tax- 
collector, and with the church: ho 
sells little, and buys little ; he touches 
little money, but he seldom lias any to 
pay. The gentle and kindly character 
of the Tuscans is often spoken of, but 
without sufficiently remarking the 
cause which has contributed most to 
keep up that gentleness; the tenure, 
by which the entire class of farmers, 
more than three-fourths of the popula¬ 
tion, are kept free from almost every 
occasion for quarrel.” The fixity of 
tenure which the metayer, so long as 
he fulfils his own obligations, possesses 
by usage, though not by law, gives 
him the local attachments, and almost 
the strong sense of personal interest, 
characteristic of a proprietor. “ The 
metayer lives on his metafile as on his 
inheritance, loving it with affection, 
labouring incessantly to improve it, 
confiding in the future, and making- 
sure that his land will be tilled after 
him by his children and his children’s 
children. In fact, the majority of 
metayers live from generation to gene¬ 
ration on the same farm; they know 
it in its details with a minuteness 
which the feeling of property can 
alone give. The plots terrassed up, one 
above the other, are often not above 
four feet wide ; but there is not one of 
them, the qualities of which the me¬ 
tayer has not studied. This one is 
dry, that other is cold and damp: 
here the soil is deep, there it is a mere 
crust which hardly covers the rock; 
wheat thrives best on one, rye on ano¬ 
ther: here it would be labour wasted 
to sow Indian corn, elsewhere the soil 
is unfit for beans and lupins, further 
off flax will grow admirably, the edge 
of this brook will be suited for hemp. 
In this way one learns with surprise 
from the metayer, that in a space of 
ten arpents, the soil, the aspect, and 


191 

the inclination of the ground present 
greater variety than a rich farmer is 
generally able to distinguish in a farm 
of five hundred acres. For the latter 
knows that he is only a temporary 
occupant; and moreover, that he must 
conduct his operations by general rules, 
and neglect details. But the expe¬ 
rienced metayer has had his intelli¬ 
gence so awakened' by interest and 
affection, as to be the best of observers; 
and with the whole future before him, 
he thinks not of himself alone, but of 
his children and grandchildren. There¬ 
fore, when he plants an olive, a tree 
which lasts for centuries, and exca¬ 
vates at the bottom of the hollow in 
which lie plants it, a channel to let out 
the water by which it would be in¬ 
jured, ho studies all the strata of tho 
earth which he has to dig out.”* 

§ 4. I do not offer these quota¬ 
tions as evidence of the intrinsic 
excellence of the metayer system ; but 
they surely suffice to prove that 
neither “land miserably cultivated” 
nor a people in “the most abject po¬ 
verty,” have any necessary connexion 
with it, and that the unmeasured vitu¬ 
peration lavished upon the system by 
English writers, is grounded on an 

* Of the intelligence of this interesting 
people, M. de Sismondi speaks in the most 
favourable terms. Few of them can read; 
but there is often one member of the family 
destined for the priesthood, who reads to 
them on winter evenings. Their language 
differs little from the purest Italian. The 
taste for improvisation in verse is general. 
“ The peasants of the Vale of Nievole fre¬ 
quent the theatre in summer on festival days, 
from nine to eleven at night: their admission 
costs them little more than five French sous 
[2 \d~\. Their favourite author is Alfieri; 
the whole history of the Atridee is familiar 
to these people who cannot read, and who 
seek from that austere poet a relaxation 
from their rude labours.” Unlike most 
rustics, they find pleasure in the beauty of 
their country. “ In the hills of the vale of 
Nievole there is in front of every house a 
threshing-ground, seldom of more than 25 or 
30 square fathoms; it is often the only level 
space in the whole farm : it is at the same 
time a terrace which commands the plains 
and the valley, and looksout upon a delight¬ 
ful country. Scarcely ever have I stood still 
to admire it, without the metayer’s coming 
out to enjoy my admiration, and point out 
with his finger the beauties which he thought 
might have escaped my notice.” 





192 BOOK II. CHAPTER VIII. § 4. 


extremely narrow view of the subject. 
I look upon the rural economy of Italy 
as simply so much additional evidence 
in favour of small occupations with 
permanent tenure. It is an example 
of wjiat can he accomplished by those 
two elements, even under the disad¬ 
vantage of the peculiar nature of the 
metayer contract, in which the motives 
to exertion on the part of the tenant 
are only half as strong as if he formed 
the land on tire same footing of per¬ 
petuity at a money-rent, either fixed, 
or varying according to some rule 
which would leave to the tenant the 
whole benefit of his own exertions. 
The metayer tenure is not one which 
we should be anxious to introduce 
where the exigencies of society had 
not naturally given birth to it; but 
neither ought we to be eager to abolish 
it on a mere a priori view of its dis¬ 
advantages. If the system in Tus¬ 
cany works as well in practice as it is 
represented to do, with every appear¬ 
ance of minute knowledge, by so com¬ 
petent an authority as Sismondi; if 
the mode of living of the people, and 
the size of forms, have for ages main¬ 
tained and still maintain themselves* 
such as they are said to be by him, it 
were to be regretted that a state of 
rural well-being so much beyond what 
is realised in most European countries, 
should be put to hazard by an attempt 
to introduce, under the guise of agri¬ 
cultural improvement, a system of 
money-rents and capitalist farmers. 
Even where the metayers are poor, 
and the subdivision great, it is not to 
be assumed as of course, that the 
change would be for the better. The 
enlargement of farms, and the intro¬ 
duction of what are called agricultural 
improvements, usually diminish the 

* “ We never,” says Sismondi, “ find a 
family of metayers proposing to their land¬ 
lord to divide the metairie, unless the work 
Is really more than they can do, and they 
feel assured of retaining the same enjoyments 
on a smaller piece of ground. We never 
find several sons all marrying, and forming 
as many new families: only one marries 
and undertakes the charge of the household: 
none of the others marry unless the first is 
childless, or unless some one of them has the 
offer of a new metairie.” New Principles 
stf Political Economy, book iii. ch. 5. 


number of labourers employed on the 
land ; and unless the growth of capital 
in trade and manufactures affords an 
opening for the displaced population, 
or unless there are reclaimable wastes 
on which they can be located, compe¬ 
tition will so reduce wages, that they 
will probably be worse off as day- 
labourers than they were as metayers. 

Mr. Jones very properly objects 
against the French Economists of the 
last century, that in pursuing their 
favourite object of introducing money- 
rents, they turned their minds solely 
to putting farmers in the place of 
metayers, instead of transforming the 
existing metayers into farmers ; which, 
as he justly remarks, can scarcely bo 
effected, unless, to enable the metayers 
to save and become owners of stock, 
the proprietors submit for a conside¬ 
rable time to a diminution of income, 
instead of expecting an increase of it, 
which has generally been their imme¬ 
diate motive for making the attempt. 
If this transformation were effected, 
and no other change made in the me¬ 
tayer’s condition; if, preserving all the 
other rights which usage ensures to 
him, he merely got rid of the land¬ 
lord’s claim to half the produce, paying 
in lieu of it a moderate fixed rent; he 
would be so far in a better position 
than at present, as the whole, instead 
of only half the fruits of any improve¬ 
ment lie made, would now belong to 
himself; but even so, the benefit would 
not be without alloy; for a metayer, 
though not himself a capitalist, has a 
capitalist for his partner, and has the 
use, in Italy at least, of a considerable 
capital, as is proved by the excellence 
of the farm buildings and it is not 
probable that the landowners would 
any longer consent to peril their move- 
able property on the hazards of agri¬ 
cultural enterprise, when assured of a 
fixed money income without it. Thus 
would the question stand, even if the 
change left undisturbed the metayer’s 
virtual fixity of tenure, and converted 
him, in fact, into a peasant proprietor 
at a quit rent. But if we suppose him 
converted into a mere tenant, displace¬ 
able at the landlord’s will, and liable 
to have his rent raised by competition 




COTTIERS. 


193 


to any amount which any unfortunate 
being in search of subsistence can be 
found to offer or promise for it; he 
would lose all the features in his con¬ 
dition which preserve it from being 


deteriorated : he would be cast down 
from liis present position of a kind of 
half proprietor of the land, and would 
sink into a cottier tenant. 


CHAPTER IX. 

OP COTTIERS. 


§ 1. By the general appellation of 
cottier tenure, 1 shall designate all 
cases without exception, in which the 
labourer makes his contract for land 
without the intervention of a capitalist 
farmer, and in which the conditions of 
the contract, especially the amount of 
rent, are determined not by custom but 
by competition. The principal European 
example of this tenure is Ireland, and 
it is from that country that the term 
cottier is derived.* By far the greater 
part of the agricultural population 
of Ireland might until very lately 
have been said to be cottier-tenants; 
except so far as the Ulster tenant- 
right constituted an exception. There 
was, indeed, a numerous class of 
labourers who (we may presume 
through the refusal either of proprie¬ 
tors or of tenants in possession to per¬ 
mit any further subdivision) had been 
unable to obtain even the smallest 
patch of land as permanent tenants. 
But, from the deficiency of capital, 
the custom of paying wages in land 
was so universal, that even those who 
worked as casual labourers for the 
cottiers or for such larger farmers as 
were found in the country, were 
usually paid not in money, but by 
permission to cultivate for the season 
a piece of ground, which was generally 
delivered to them by the farmer ready 
manured, and was known by the name 

* In its original acceptation, the word 
“ cottier” designated a class of sub-tenants, 
who rent a cottage and an acre or two of land 
from the small farmers. But the usage of 
writers has long since stretched the term to 
include those small farmers themselves, and 
generally all peasant farmers whose rents are 
determined by competition. 

JP.E. 


of conacre. For this they agreed to 
pay a money rent, often of several 
pounds an acre, but no money actually 
passed, the debt being worked out in 
labour, at a money valuation. 

The produce, on the cottier system, 
being divided into two portions, rent, 
and the remuneration of the labourer; 
the one is evidently determined by the 
other. The labourer has whatever 
the landlord does not take: the con¬ 
dition of the labourer depends on the 
amount of rent. But rent, being regu¬ 
lated by competition, depends upon the 
relation between the demand for land, 
and the supply of it. The demand for 
land depends on the number of com¬ 
petitors, and the competitors are the 
whole rural population. The effect, 
therefore, of this tenure, is to bring the 
principle of population to act directly 
on the land, and not, as in England, 
on capital. Rent, in this state of 
things, depends on the proportion be¬ 
tween population and land. As the 
land is a fixed quantity, while popula¬ 
tion has an unlimited power of in¬ 
crease ; unless something checks that 
increase, the competition for land 
soon forces up rent to the highest 
point consistent with keeping the 
population alive. The effects, there¬ 
fore, of cottier tenure depend on the 
extent to which the capacity of popu¬ 
lation to increase is controlled, either 
by custom, by individual prudence, or 
by starvation and disease. 

It would be an exaggeration to 
affirm, that cottier tenancy is abso¬ 
lutely incompatible with a prosperous 
condition of the labouring class. If 
we could suppose it to exist among a 

O 





BOOK II. CHAPTER IX. § 1. 


194 

people to whom a high standard of 
comfort w 7 as habitual; whose require¬ 
ments were such, that they would not 
offer a higher rent for land than would 
leave them an ample subsistence, and 
whose moderate increase of numbers 
left no unemployed population to force 
up rents by competition, save wdien 
the increasing produce of the land 
from increase of skill would enable a 
higher rent to be paid without incon¬ 
venience ; the cultivating class might 
be as well remunerated, might have as 
large a share of the necessaries and 
comforts of life, on this system of tenure 
as on any other. They would not, 
however, while their rents were arbi¬ 
trary, enjoy any of the peculiar ad¬ 
vantages which metayers on the Tuscan 
system derive from their connexion 
with the land. They wmuld neither 
have the use of a capital belonging to 
their landlords, nor would the want of 
this be made up by the intense motives 
to bodily and mental exertion which 
act upon the peasant who has a per¬ 
manent tenure. On the contrary, any 
increased value given to the land by 
the exertions of the tenant, would have 
no effect but to raise the rent against 
himself, either the next year, or at 
farthest when his lease expired. The 
landlords might have justice or good 
sense enough not to avail themselves 
of the advantage which competition 
would give them; and different land¬ 
lords would do so in different degrees. 
But it is never safe to expect that a 
class or body of men will act in opposi¬ 
tion to their immediate pecuniary in¬ 
terest; and even a doubt on the 
subject would be almost as fatal as a 
-certainty, for when a person is con¬ 
sidering whether or not to undergo a 
present exertion or sacrifice for a com¬ 
paratively remote future, the scale is 
turned by a very small probability 
that the fruits of the exertion or 
of the sacrifice would be taken from 
him. The only safeguard against 
these uncertainties would be the 
growth of a custom, insuring a perma¬ 
nence of tenure in the same occupant, 
without liability to any other increase 
of rent than might happen to be sanc¬ 
tioned by the general sentiments of the 


community. The Ulster tenant-right 
is such a custom. The very consider¬ 
able sums which outgoing tenants ob¬ 
tain from their successors, for the good¬ 
will of their farms,* in the first place 
actually limit the competition for land 
to persons w r ho have such sums to 
offer : while the same fact also proves 
that full advantage is not taken by the 
landlord of even that more limited 
competition, since the landlord’s rent 
does not amount to the whole of w r hat 
the incoming tenant not only offers but 
actually pays. He does so in the full 
confidence that the rent will not be 
raised ; and for this he has the guaran¬ 
tee of a custom, not recognised by law, 
but deriving its binding force from 
another sanction, perfectly well under¬ 
stood in Ireland.f Without one or 
other of these supports, a custom limit¬ 
ing the rent of land is not likely to grow 
up in any progressive community. If 
wealth and population were stationary, 
rent also would generally be station¬ 
ary, and after remaining a long time 
unaltered, would probably come to be 
considered unalterable. But all pro¬ 
gress in wealth and population tends toa 
rise of rents. Under a metayer system 
there is an established mode in which 
the owner of land is sure of partici¬ 
pating in the increased produce drawn 
from it. But on the cottier system he 
can only do so by a readjustment of the 

* “ It is not uncommon for a tenant with¬ 
out a lease to sell the bare privilege of occu¬ 
pancy or possession of his farm, without any 
visible sign of improvement having been made 
by him, at from ten to sixteen, up to twenty 
and even forty years purchase of the rent.”— 
(Digest of Evidence taken by Lord Devon's 
Commission, Introductory Chapter.) The 
compiler adds, “ the comparative tranquillity 
of that district” (Ulster) “ may perhaps be 
mainly attributable to this fact.” 

t “ It is in the great majority of cases not 
a reimbursement for outlay incurred, or im¬ 
provements effected on the land, but a mere 
life insurance or purchase of immunity from 
outrage.”—( Digest , ut supra.) “The present 
tenant-right of Ulster” (the writer judiciously 
remarks) “ is an embryo copyhold." “ Even 
there, if the tenant-right be disregarded, and 
a tenant be ejected without having received 
the price of his good-will, outrages are gene¬ 
rally the consequence.”—(Ch. viii.) “ The 
disorganized state of Tipperary, and the 
agrarian combination throughout Ireland, 
are but a methodized war to obtain the 
Ulster tenant-right.” 




COTTIERS. 


contract, while that readjustment, in a 
progressive community, would almost 
always he to his advantage. His 
interest, therefore, is decidedly opposed 
to the growth of any custom commuting 
rent into a fixed demand. 

§ 2. Where the amount of rent is 
not limited, either by law or custom, a 
cottier system has the disadvantages 
of the worst metayer system, with 
scarcely any of the advantages by 
which, in the best forms of that 
tenure, they are compensated. It is 
scarcely possible that cottier agricul¬ 
ture should be other than miserable. 
There is not the same necessity that 
the condition of the cultivators should 
be so. Since by a sufficient restraint 
on population competition for land 
could be kept down, and extreme 
poverty prevented ; habits of prudence 
and a high standard of comfort, once 
established, would have a fair chance of 
maintaining themselves: though even 
in these favourable circumstances the 
motives to prudence would be consider¬ 
ably weaker than in the case of metay¬ 
ers, protected by custom (like those of 
Tuscany) from being deprived of their 
farms: since a metayer family, thus 
protected, could not be impoverished by 
any other improvident multiplication 
than their own, but a cottier family, 
however prudent and self-restraining, 
may have the rent raised against it by 
the consequences of the multiplication 
of other families. Any protection to 
the cottiers against this evil could only 
be derived from a salutary sentiment of 
duty or dignity, pervading the class. 
From this source, however, they might 
derive considerable protection. If the 
habitual standard of requirement 
among the class were high, a young 
man might not choose to offer a rent 
which would leave him in a worse 
condition than the preceding tenant; 
or it might be the general custom, as 
it actually is in some countries, not to 
marry until a farm is vacant. 

But it is not where a high standard 
of comfort has rooted itself in the habits 
of the labouring classes, that we are 
ever called upon to consider the effects 
of a cottier system. That system is 


195 

found only where the habitual require¬ 
ments of the rural labourers are the 
lowest possible; where, as long as 
they are not actually starving, they 
will multiply: and population is only 
checked by the diseases, and the short¬ 
ness of life, consequent on insufficiency 
of merely physical necessaries. This 
was the state of the largest portion of 
the Irish peasantry. When a people 
have sunk into this state, and still 
more when they have been in it from 
time immemorial, the cottier system is 
an almost insuperable obstacle to their 
emerging from it. When the habits of 
the people are such that their increase 
is never checked but by the impossi¬ 
bility of obtaining a bare support, and 
when this support can only be obtained 
from land, all stipulations and agree¬ 
ments respecting amount of rent are 
merely nominal; the competition for 
land makes the tenants undertake to pay 
more than it is possible they should pay, 
and when they have paid all they can, 
more almost always remains due. 

“As it may fairly be said of the 
Irish peasantry,” said Mr. Revans, the 
Secretary to the Irish Poor Law En¬ 
quiry Commission,* “that every family 
wdiich has not sufficient land to yield 
its food has one or more of its members 
supported by begging, it will easily be 
conceived that every endeavour is made 
by the peasantry to obtain small hold¬ 
ings, and that they are not influenced 
in their biddings by the fertility of the 
land, or by their ability to pay the 
rent, but solely by the offer which is 
most likely to gain them possession. 
The rents which they promise, they 
are almost invariably incapable of pay¬ 
ing; and consequently they become 
indebted to those under whom they 
hold, almost as soon as they take 
possession. They give up, in the shape 
of rent, the whole produce of the land 
with the exception of a sufficiency of 
potatoes for a subsistence ; but as this 
is rarely equal to the promised rent, 

* Evils of the State of Ireland, their Causes 
and their Remedy. Page 10. A pamphlet, 
containing, among other things, an excellent 
digest and selection of evidence from the mass 
collected by the Commission presided over by 
Archbishop Whately. 




BOOK II. CHAPTER IX. § 3. 


196 

they constantly have acrainst them an 
increasing balance. In some cases, 
the largest quantity of produce which 
their holdings ever yielded or which, 
under their system of tillage, they 
could in the most favourable seasons 
he made to yield, would not be equal 
to the rent hid; consequently, if the 
easant fulfilled his engagement with 
is landlord, which he is rarely able to 
accomplish, he would till the ground 
for nothing, and give his landlord a 
premium tor being allowed to till it. 
On the sea-coast, fishermen, and in 
the northern counties those who have 
looms, frequently pay more in rent 
than the market value of the whole 
produce of the land they hold. It 
might be supposed that they would be 
better without land under such circum¬ 
stances. But fishing might fail during 
a week or two, and so might the de¬ 
mand for the produce of the loom, 
when, did they not possess the land 
upon which their food is grown, they 
might starve. The full amount of the 
rent bid, however, is rarely paid. The 
easant remains constantly in debt to 
is landlord; his miserable posses¬ 
sions—the wretched clothing of him¬ 
self and of his family, the two or three 
stools, and the few pieces of crockery, 
which his wretched hovel contains, 
would not, if sold, liquidate the stand¬ 
ing and generally accumulating debt. 
The peasantry are mostly a year in 
arrear, and their excuse for not paying 
more is destitution. Should the pro¬ 
duce of the holding, in any year, be 
more than usually abundant, or should 
the peasant by any accident become 
possessed of any property, his comforts 
cannot be increased ; he cannot indulge 
in better food, nor in a greater quantitv 
of it. His furniture cannot be increased, 
neither can his wife or children be better 
clothed. The acquisition must go to 
the person under whom he holds. The 
accidental addition will enable him to 
reduce his arrear of rent, and thus to 
deter ejectment. But this must be the 
bound of his expectation.” 

As an extreme instance of the in¬ 
tensity of competition for land, and of 
the monstrous height to which it occa¬ 
sionally forced up the nominal rent; 


we may cite from the evidence taken 
by Lord Devon’s Commission,* a fact 
attested by Mr. Hurly, Clerk of the 
Crown for Kerry: “ 1 have known a 
tenant bid for a farm that I was per¬ 
fectly well acquainted with, worth 50 1. 
a-year : I saw the competition get up 
to such an extent, that he was declared 
the tenant at 450Z.” 

§ 3. In such a condition, what can 
a tenant gain by any amount of in¬ 
dustry or prudence, and what lose by 
any recklessness ? If the landlord at 
any time exerted his full legal rights, 
the cottier would not be able even to 
live. If by extra exertion he doubled 
the produce of his bit of land, or if he 
prudently abstained from producing 
mouths to eat it up, his only gain would 
be to have more left to pay to his land¬ 
lord ; while, if he had twenty children, 
they would still be fed first, and the 
landlord could only take what was left. 
Almost alone amongst mankind the 
cottier is in this condition, that he can 
scarcely be either better or worse off 
by any act of his own. If he were 
industrious or prudent, nobody but his 
landlord would gain ; if he is lazy or 
intemperate, it is at his landlord's'ex¬ 
pense. A situation more devoid of 
motives to either labour or self-com¬ 
mand, imagination itself cannot con¬ 
ceive. The inducements of free human 
beings are taken away, and those of a 
slave not substituted. He has nothing 
to hope, and nothing to fear, except 
being dispossessed of his holding, and 
against this he protects himself by the 
ultima ratio of a defensive civil war. 
Rockism and Whiteboyism were the 
determination of a people who had 
nothing that could be called theirs but 
a daily meal of the lowest description 
of food, not to submit to being deprived 
ot that for o : her people’s convenience. 

Is it not, then, a bitter satire on the 
mode in which opinions are formed on 
the most important problems of human 
nature and life, to find piiblic instruc¬ 
tors of the greatest pretension, imput¬ 
ing the backwardness of Irish industry, 
and the want of energy of the Irish 
people in improving their condition, to 
* Evidence, p. 851. 




COTTIERS. 197 


a peculiar indolence and recklessness 
in the Celtic race? Of all vulgar 
modes of escaping from the considera¬ 
tion of the effect of social and moral 
influences on the human mind, the 
most vulgar *is that of attributing the 
diversities of conduct and character to 
inherent natural differences. What 
race would not he indolent and in¬ 
souciant when things are so arranged, 
that they derive no advantage from 
forethought or exertion ? If such are 
the arrangements in the midst of which 
they live and work, what wonder if 
the listlessness and indifference so en¬ 
gendered are not shaken off the first 
moment an opportunity offers when ex¬ 
ertion would really he of use ? It is 
very natural that a pleasure-loving and 
sensitively organized people like the 
Irish, should be less addicted to steady 
routine labour than the English, because 
life has more excitements for them inde¬ 
pendent of it; but they are not less 
fitted for it than their Celtic brethren the 
French, nor less so than the Tuscans, 
or the ancient Greeks. An excitable 
organization is precisely that in which, 
by adequate inducements, it is easiest 
to kindle a spirit of animated exertion. 
It speaks nothing against the capaci¬ 
ties of industry in human beings, that 
they will not exert themselves without 
motive. No labourers work harder, in 
England or America, than the Irish ; 
but not under a cottier system. 

§ 4. The multitudes who till the 
soil of India, are in a condition suffi¬ 
ciently analogous to the cottier system, 
and at the same time sufficiently dif¬ 
ferent from it, to render the compari¬ 
son of the two a source of some in¬ 
struction. In most parts of India 
there are, and perhaps have always 
been, only two contracting parties, the 
landlord and the peasant: the landlord 
being generally the sovereign, except 
where he has, by a special instrument, 
conceded his rights to an individual, 
who becomes his representative. The 
payments, however, of the peasants, or 
ryots, as they are termed, have seldom 
if ever been regulated, as in Ireland, 
by competition. Though the customs 
locally obtaining were infinitely va¬ 


rious, and though practically no cus¬ 
tom could be maintained against the 
sovereign’s will, there was always a 
rule of some sort common to a neigh¬ 
bourhood : the collector did not make 
his separate bargain with the peasant, 
but assessed each according to the 
rule adopted for the rest. The idea 
was thus kept up of a right of property 
in the tenant, or at all events, of a 
right to permanent possession; and the 
anomaly arose of a fixity of tenure in 
the peasant-farmer, co-existing with an 
arbitrary power of increasing the rent. 

When the Mogul government sub¬ 
stituted itself throughout the greater 
part of India for the Hindoo rulers, it 
proceeded on a different principle. A 
minute survey was made of the land, 
and upon that survey an assessment 
was founded, fixing the specific pay¬ 
ment due to the government from each 
field. If this assessment had never 
been exceeded, the ryots would have 
been in the comparatively advantage¬ 
ous position of peasant-proprietors, sub¬ 
ject to a heavy, but a fixed quit-rent. 
The absence, however, of any real pro¬ 
tection against illegal extortions, ren¬ 
dered this improvement in their condi¬ 
tion rather nominal than real; and, 
except during the occasional accident 
of a humane and vigorous local admin¬ 
istrator, the exactions had no practical 
limit but the inability of the ryot to 
pay more. 

It was to this state of things that 
the English rulers of India succeeded ; 
and they were, at an early period, 
struck with the importance of putting 
an end to this arbitrary character of 
the land-revenue, and imposing a fixed 
limit to the government demand. They 
did not attempt to go back to the 
Mogul valuation. It has been in gene¬ 
ral the very rational practice of the 
English Government in India, to pay 
little regard to what was laid down as 
the theory of the native institutions, 
but to inquire into the rights which 
existed and were respected in practice, 
and to protect and enlarge those. For 
a long time, however, it blundered 
grievously about matters of fact, and 
grossly misunderstood the usages and 
rights which it found existing. Its 




198 BOOR II. CHAPTER IX. § 4. 


mistakes arose from the inability of 
ordinary minds to imagine a state of so¬ 
cial relations fundamentally different 
from those with which they are practi¬ 
cally familiar. England being accus¬ 
tomed to great estates and great land¬ 
lords, the English rulers took it for 
granted that India must possess the 
like ; and looking round for some set 
of people who might be taken for the 
objects of their search, they pitched 
upon a sort of tax-gatherers called 
zemindars. “ The zemindar,’’says the 
philosophical historian of India,* “had 
some of the attributes which belong to 
a landowner ; he collected the rents of 
a particular district, he governed the 
cultivators of that district, lived in 
comparative splendour, and his son 
succeeded him when he died. The 
zemindars, therefore, it was inferred 
without delay, were the proprietors of 
the soil, the landed nobility and gentry 
of India. It was not considered that 
the zemindars, though they collected 
the rents, did not keep them ; but paid 
them all away, with a small deduction, 
to the government. It was not con¬ 
sidered that if they governed the ryots, 
and in many respects exercised over 
them despotic power, they did not 
govern them as tenants of theirs, hold¬ 
ing their lands either at will or by con¬ 
tract under them. The possession of 
the ryot was an hereditary possession; 
from which it was unlawful for the 
zemindar to displace him: for every 
farthing which the zemindar drew from 
the ryot, he was bound to account; 
and it was only by fraud, if, out of all 
that he collected, he retained an ana 
more than the small proportion which, 
as pay for the collection, he was per¬ 
mitted to receive.” 

“ There was an opportunity in India,” 
continues the historian, “ to which the 
history of the world presents not a 
parallel. Next after the sovereign, 
the immediate cultivators had, by far, 
the greatest portion of interest in the 
soil. For the rights (such as they 
were) of the zemindars, a complete 
compensation might have easily been 
made. The generous resolution was 

* Mill’s History of British India, book vi. 
ch. 8. 


adopted, of sacrificing to the improve¬ 
ment of the country, the proprietary 
rights of the sovereign. The motives 
to improvement which property gives, 
and of which the power was so justly 
appreciated, might have been bestowed 
upon those upon whom they would have 
operated with a force incomparably 
greater than that with which they 
could operate upon any other class of 
men : they might have been bestowed 
upon those from whom alone, in every 
country, the principal improvements 
in agriculture must be derived, the 
immediate cultivators of the soil. And 
a measure worthy to be ranked among 
the noblest that ever were taken for 
the improvement of any country, might 
have helped to compensate the people 
of India for the miseries of that mis- 
government which they had so* long 
endured. But the legislators were 
English aristocrats ; and aristocratical 
prejudices prevailed.” 

The measure proved a total failure, 
as to the main effects which its well* 
meaning promoters expected from it. 
Unaccustomed to estimate the mode in 
which the operation of any given insti¬ 
tution is modified even by such variety 
of circumstances as exists within a 
single kingdom, they flattered them¬ 
selves that they had created, through¬ 
out the Bengal provinces, English 
landlords, and it proved that they had 
only created Irish ones. The new 
landed aristocracy disappointed every 
expectation built upon them. They 
did nothing for the improvement of 
their estates, but everything for their 
own ruin. The same pains not being 
taken, as had been taken in Ireland, to 
enable the landlords to defy-the conse¬ 
quences of their improvidence, nearly 
the whole land of Bengal had to be 
sequestrated and sold, for debts or 
arrears of revenue, and in one genera¬ 
tion most of the ancient zemindars had 
ceased to exist. Other families, mostly 
the descendants of Calcutta money 
dealers, or of native officials who had 
enriched themselves under the British 
government, now occupy their place ; 
and live as useless drones on the soil 
which has been given up to them. 
Whatever the government has sacri- 




MEANS OF ABOLISHING COTTIER TENANCY. 199 


ficed of its pecuniary claims, for the 
creation of such a class, has at the best 
been wasted. 

In the parts of India into which the 
British rule has been more recently 
introduced, the blunder has been avoided 
of endowing a useless body of great 
landlords with gifts from the public 
revenue. In most parts of the Madras 
and in part of the Bombay Presidency, 
the rent is paid directly to the govern¬ 
ment by the immediate cultivator. 
In the North-Western Provinces, the 
government makes its engagement 
with the village community collec¬ 
tively, determining the share to be paid 
by each individual, but holding them 
jointly responsible for each other’s de¬ 
fault. But in the greater part of India, 
rthe immediate cultivators have not ob¬ 
tained a perpetuity of tenure at a fixed 
rent. The government manages the 
land on the principle on which a good 
Irish landlord manages his estate: 
not putting it up to competition, not 
asking the cultivators what they 
will promise to pay, but determining 
for itself what they can afford to pay, 
and defining its demand accordingly. 
In many districts a portion of the 


cultivators are considered as tenants of 
the rest, the government making its 
demand from those only (often a 
numerous body) who are looked upon 
as the successors of the original settlers 
or conquerors of the village. Some¬ 
times the rent is fixed only for one 
year, sometimes for three or five ; but 
the uniform tendency of present policy 
is towards long leases, extending, in 
the northern provinces of India, to a 
term of thirty years. This arrange¬ 
ment has not existed for a sufficient 
time to have shown by experience, 
how far the motives to improvement 
which the long lease creates in the 
minds of the cultivators, fall short of 
the influence of a perpetual settle¬ 
ment.* But the two plans, of annual 
settlements and of short leases, are 
irrevocably condemned. They can only 
be said to have succeeded, in compari¬ 
son with the unlimited oppression which 
existed before. They are approved by 
nobody, and were never looked upon in 
any other light than as temporary ar¬ 
rangements, to be abandoned when a 
more complete knowledge of the capa¬ 
bilities of the country should afford 
data for something more permanent. 


CHAPTER X. 

MEANS OF ABOLISHING COTTIER TENANCY. 


§ 1. When the first edition of this 
work was written and published, the 
question, what is to be done with a 
cottier population, was to the English 
Government the most urgent of prac¬ 
tical questions. The majority of a 

{ jopulation of eight millions, having 
ong grovelled in helpless inertness and 
abject poverty under the cottier sys¬ 
tem, reduced by its operation to mere 
food of the cheapest description, and to 
an incapacity of either doing or will¬ 
ing anything for the improvement of 
their lot, had at last, by the failure 
of that lowest quality of food, been 
plunged into a state in which the 


alternative seemed to be either death, 
or to be permanently supported by 
other people, or a radical change in the 
economical arrangements under which 
it had hitherto been their misfortune 
to live. Such an emergency had com¬ 
pelled attention to the subject from 
the legislature and from the nation, but 
it could hardly be said with much re¬ 
sult ; for, the evil having originated in 
a system of land tenancy which with¬ 
drew from the people every motive to 
* Since this was written, the resolution has 
been adopted by the Indian Government of 
converting; the long leases of the Northern 
Provinces into perpetual tenures at fexed 
rents. 






BOOK II. CHAPTER X. § 1. 


200 

industry or thrift except the fear of 
starvation, the remedy provided by 
Parliament was to take away even 
that, by conferring on them a legal 
claim to eleemosynary support: while, 
towards correcting the cause of the 
mischief, nothing was done, beyond 
vain complaints, though at the price 
to the national treasury of ten millions 
sterling for the delay. 

“ It is needless,” (I observed) “to 
expend any argument in proving that 
the very foundation of the economical 
evils of Ireland is the cottier system; 
that while peasant rents fixed by com¬ 
petition are the practice of the countiy, 
to expect industry, useful activity, any 
restraint on population but death, or 
any the smallest diminution of poverty, 
is to look for figs on thistles and grapes 
on thorns. If our practical statesmen 
are not ripe for the recognition of this 
fact; or if while they acknowledge it 
in theory, they have not a sufficient 
feeling of its reality, to be capable of 
founding upon it any course of con¬ 
duct ; there is still another, and a 
purely physical consideration, from 
which they will find it impossible to 
escape. If the one crop on which the 
people have hitherto supported them¬ 
selves continues to be precarious, either 
some new and great impulse must be 
given to agricultural skill and industry, 
or the soil of Ireland can no longer feed 
anything like its present population. 
The whole produce of the western half 
of the island, leaving nothing for rent, 
will not now keep permanently in ex¬ 
istence the whole of its people: and 
they will necessarily remain an annual 
charge on the taxation of the empire, 
until they are reduced either by emi¬ 
gration or by starvation to a number 
corresponding with the low state of 
their industry, or unless the means are 
found of making that industry much 
more productive.” 

Since these words were written, 
events unforeseen by . any one have 
saved the English rulers of Ireland from 
the embarrassments which would have 
been the just penalty of their indiffer¬ 
ence and want of foresight. Ireland, 
under cottier agriculture, could no 
longer supply food to its population: 


Parliament, by way of remedy, ap¬ 
plied a stimulus to population, but 
none at all to production ; the help, 
however, which had not been provided 
for the people of Ireland by political 
wisdom, came from an unexpected 
source. Self-supporting emigration—■ 
the Wakefield system, brought into 
effect on the voluntary principle and 
on a gigantic scale (the expenses of 
those who followed being paid from the 
earnings of those who went befoi'e) 
has, for the present, reduced the popu¬ 
lation down to the number for which 
the existing agricultural system can 
find employment and support. The 
census of 1851, compared with that of 
1841, showed in round numbers a 
diminution of population of a million 
and a half. The subsequent census (of 
1861) shows a further diminution of 
about half a million. The Irish hav¬ 
ing thus found the way to that 
flourishing continent which for genera¬ 
tions will be capable of supporting in 
undiminished comfort the increase of 
the population of the whole world ; the 
peasantry of Ireland having learnt to 
fix their eyes on a terrestrial paradise 
beyond the ocean, as a sure refuge 
both from the oppression of the Saxon 
and from the tyranny of nature ; there 
can be little doubt that however much 
the employment for agricultural labour 
may hereafter be diminished by the 
general introduction throughout Ire¬ 
land of English farming, or even if like 
the county of Sutherland all Ireland 
should be turned into a grazing farm, 
the superseded people would migrate 
to America with the same rapidity, and 
as free of cost to the nation, as the 
million of Irish who went thither during 
the three years previous to 1851. 
Those who think that the land of a 
country exists for the sake of a few 
thousand landowners, and that as long 
as rents are paid, society and govern¬ 
ment have fulfilled their function, may 
see in this consummation a happy end 
to Irish difficulties. 

But this is not a time, nor is the 
human mind now in a condition, in 
which such insolent pretensions can be 
maintained. The land of Ireland, the 
land of every country, belongs to the 




MEANS OF ABOLISHING COTTIER TENANCY. 


people of that country. The individuals 
called landowners have no right, in 
morality and justice, to anything hut 
the rent, or compensation for its sale¬ 
able value. With regard to the land 
itself, the paramount consideration is, 
by what mode of appropriation and of 
cultivation it can be made most useful 
to the collective body of its inhabitants. 
To the owners of the rent it may be 
very convenient that the bulk of the 
inhabitants, despairing of justice in the 
country where they and their ances¬ 
tors have lived and suffered, should 
seek on another continent that property 
in land which is denied to them at 
home. But the legislature of the em¬ 
pire ought to regard with other eyes 
the forced expatriation of millions of 
people. When the inhabitants of a 
country quit the country en masse be¬ 
cause its Government will not make it 
a place fit for them to live in, the 
Government is judged and condemned. 
There is no necessity for depriving the 
landlords of one farthing of the pecu¬ 
niary value of their legal rights ; but 
justice requires that the actual culti¬ 
vators should be enabled to become in 
Ireland what they will become in 
America—proprietors of the soil which 
they cultivate. 

Good policy requires it no less. Those 
who, knowing neither Ireland nor any 
foreign country, take as their sole 
standard of social and economical ex¬ 
cellence English practice, propose as 
the single remedy for Irish wretched¬ 
ness, the transformation of the cottiers 
into hired labourers. But this is rather 
a scheme for the improvement of Irish 
agriculture, than of the condition of the 
Irish people. The status of a day- 
labourer has no charm for infusing fore¬ 
thought, frugality, or self-restraint, into 
a people devoid of them. If the Irish 
peasantry could be universally changed 
into receivers of wages, the old habits 
and mental characteristics of the people 
remaining, we should merely see four 
or five millions of people living as day- 
labourers in the same wretched manner 
in which as cottiers they lived before ; 
equally passive in the absence of every 
comfort, equally reckless in multipli¬ 
cation, and even, perhaps, equally list- 


201 

less at their work; since they could not 
be dismissed in a body, and if they could, 
dismissal would now be simply remand¬ 
ing them to the poor-rate. Far other 
would be the effect of making them 
peasant proprietors. A people who in 
industry and providence have every¬ 
thing to learn—who are confessedly 
among the most backward of European 
populations in the industrial virtues— 
require for their regeneration the most 
powerful incitements by which those 
virtues can be stimulated : and there is 
no stimulus as yet comparable to pro¬ 
perty in land. A permanent interest 
in the soil to those who till it, is almost 
a guarantee for the most unwearied 
laboriousness : against over-population, 
though not infallible, it is the best 
preservative yet known, and where it 
failed, any other plan would probably 
fail much more egregiously; the evil 
would be beyond the reach of merely 
economic remedies. 

The case of Ireland is similar in its 
requirements to that of India. In India, 
though great errors have from time to 
time been committed, no one ever pro¬ 
posed, under the name of agricultural 
improvement, to eject the ryots or pea¬ 
sant farmers from their possession ; the 
improvement that has been looked for, 
has been through making their tenure 
more secure to them, and the sole dif¬ 
ference of opinion is between those who 
contend for perpetuity, and those who 
think that long leases will suffice. The 
same question exists as to Ireland; and 
it would be idle to deny that long leases, 
under such landlords as are sometimes 
to be found, do effect wonders, even in 
Ireland. But then, they must be leases 
at a low rent. Long leases are in no 
way to be relied on for getting rid of 
cottierism. Luring the existence of 
cottier tenancy, leases have always been 
long ; twenty-one years and three lives 
concurrent, was a usual term. But the 
rent being fixed by competition, at a 
higher amount than could be paid, so 
that the tenant neither had, nor could 
by any exertion acquire, a beneficial 
interest in the land, the advantage of 
a lease was merely nominal. In India, 
the government, where it has not im¬ 
prudently made over its proprieta.y 




202 BOOK II. CHAPTER X. § 1. 


rights to the zemindars, is able to pre¬ 
vent this evil, because, being itself the 
landlord, it can fix the rent according 
to its own judgment; hut under indi¬ 
vidual landlords, while rents are fixed 
by competition, and the competitors are 
a peasantry struggling for subsistence, 
nominal rents are inevitable, unless the 
population is so thin, that the compe¬ 
tition itself is only nominal. The ma¬ 
jority of landlords will grasp at imme¬ 
diate money and immediate power; 
and so long as they find cottiers eager 
to offer them everything, it is useless to 
rely on them for tempering the vicious 
practice by a considerate self-denial. 

A perpetuity is a stronger stimulus 
to improvement than a long lease : not 
only because the longest lease, before 
coming to an end, passes through all 
the varieties of short leases down to no 
lease at all'; but for more fundamental 
reasons. It is very shallow, even in 
pure economics, to take no account of 
the influence of imagination : there is 
a virtue in “ for ever” beyond the 
longest term of years ; even if the term 
is long enough to include children, and 
all whom a person individually cares 
for, yet until he has reached that high 
degree of mental cultivation at which 
the public good (which also includes 
perpetuity) acquires a paramount as¬ 
cendancy over his feelings and desires, 
he will not exert himself with the same 
ardour to increase the value of an es¬ 
tate, his interest in which diminishes 
in value every year. Besides, while 
perpetual tenure is the general rule of 
landed property, as it is in all the 
countries of Europe, a tenure for a 
limited period, however long, is sure to 
be regarded as something of inferior 
consideration and dignity, and inspires 
less of ardour to obtain it, and of attach¬ 
ment to it when obtained. But where 
a country is under cottier tenure, the 
question of perpetuity hiquite secondary 
to the more important point, a limita¬ 
tion of the rent. Rent paid by a capi¬ 
talist who farms for profit, and not for 
bread, may safely be abandoned to 
competition; rent paid by labourers 
cannot, unless the labourers were in a 
state of civilization and improvement 
■which labourers have nowhere yet 


reached, and cannot easily reach under 
such a tenure. Peasant rents ought 
never to be arbitrary, never at the dis¬ 
cretion of the landlord : either by cus¬ 
tom or law, it is imperatively necessary 
that they should be fixed; and where 
no mutually advantageous custom, such 
as the metayer system of Tuscany, has 
established itself, reason and experience 
recommend that they should be fixed 
by authority: thus changing the rent 
into a quit-rent, and the farmer into a 
peasant proprietor. 

For carrying this change into effect 
on a sufficiently large scale to accom¬ 
plish the complete abolition of cottier 
tenancy, the mode which most obvi¬ 
ously suggests itself is the direct one, 
of doing the thing outright by Act of 
Parliament; making the whole land of 
Ireland the property of the tenants, 
subject to the rents now really paid 
(not the nominal rents), as a fixed rent 
charge. This, under the name of 
“ fixity of tenure,” was one of the de¬ 
mands of the Repeal Association dur¬ 
ing the most successful period of their 
agitation; and was better expressed by 
Mr. Conner, ixs earliest, most enthusi¬ 
astic, and most indefatigable apostle,* 
by the words, “ a valuation and a per¬ 
petuity.” In such a measure there 
would not have been any injustice, pro¬ 
vided the landlords were compensated 
for the present value of the chances of 
increase which they were prospectively 
required to forego. The rupture of ex¬ 
isting social relations would hardly have 
been more violent than that effected by 
the ministers Stein and Hardenberg, 
when, by a series of edicts, in the early 
part of the present century, they revo¬ 
lutionized the state of landed property 
in the Prussian monarchy, and left their 
names to posterity among the greatest 
benefactors of their country. To en¬ 
lightened foreigners writing on Ireland, 
Von Raumer and Gustave de Beau¬ 
mont, a remedy of this sort seemed so 
exactly and obviously what the disease 
required, that they had some difficulty 

* Author of numerous pamphlets, entitled 
“ True Political Economy of Ireland,” 

‘ ‘ Letter to the Earl of Devon,” “ Two 
Letters on the Rackrent oppression of Ire¬ 
land,” and others. Mr. Conner has been an 
agitator on the subject since 1832. 





MEANS OF ABOLISHING COTTIER TENANCY. 203 


in comprehending how it was that the 
thing was not yet done. 

This, however, would have been, in 
the first place, a complete expropriation 
of the higher classes of Ireland: which, 
if there is any truth in the principles 
we have laid down, would he perfectly 
warrantable, but only if it were the sole 
means of effecting a great public good. 
In the second place, that there should 
be none but peasant proprietors, is in 
itself far from desirable. Large farms, 
cultivated by large capital, and owned 
by persons of the best education which 
the country can give, persons qualified 
by instruction to appreciate scientific 
discoveries, and able to bear the delay 
and risk of costly experiments, are an 
important part of a good agricultural 
system. Many such landlords there 
are even in Ireland ; and it would be a 
public misfortune to drive them from 
their posts. A large proportion also of 
the present holdings are probably still 
too small to try the proprietary system 
under the greatest advantages: nor are 
the tenants always the persons one 
would desire to select as the first occu¬ 
pants of peasant-properties. There are 
numbers of them on whom it would 
have a more beneficial effect to give 
them the hope of acquiring a landed 
property by industry and frugality, 
than the property itself in immediate 
possession. ♦ 

There are, however, much milder 
measures, not open to similar objec¬ 
tions, and which, if pushed to the 
utmost extent of which they are sus¬ 
ceptible, would realize in no incon¬ 
siderable degree the object sought. 
One of them would be, to enact that 
whoever reclaims waste land becomes 
the owner of it, at a fixed quit-rent 
equal to a moderate interest on its 
mere value as waste. It would of 
course be a necessary part of this mea¬ 
sure, to make compulsory on landlords 
the surrender of waste lands (not of an 
ornamental character) whenever re¬ 
quired for reclamation. Another ex¬ 
pedient, and one in which individuals 
could co-operate, would be to buy as 
much as possible of the land offered for 
sale, and sell it again in small portions 
as peasant- properties. A Society for 


this purpose was at one time projected 
(though the attempt to establish it 
proved unsuccessful) on the principles, 
so far as applicable, of the Freehold 
Land Societies which have been so 
successfully established in England, 
not primarily for agricultural, but for 
electoral purposes. 

This is a mode in which private 
capital may be employed in renovating 
the social and agricultural economy of 
Ireland, not only without sacrifice but 
with considerable profit to its owners. 
The remarkable success of the Waste 
Land Improvement Society, which 
proceeded on a plan far less advan¬ 
tageous to the tenant, is an instance 
of what an Irish peasantry can be 
stimulated to do, by a sufficient assur¬ 
ance that what they do will be for 
their own advantage. It is not even 
indispensable to adopt perpetuity as 
the rule; long leases at moderate rents, 
like those of the Waste Land Society, 
would suffice, if a prospect were held 
out to the farmers of being allowed to 
purchase their farms with the capital 
which they might acquire, as the 
Society’s tenants were so rapidly 
acquiring under the influence of its 
beneficent system.* When the lands 

* Though this society, during the years 
succeeding the famine, was forced to wind 
up its affairs, the memory of what it accom¬ 
plished ought to be preserved. The follow¬ 
ing is an extract in the Proceedings of Lord 
Devon’s Commission (page 84). from the re¬ 
port made to the society in 1845, by their 
intelligent manager, Colonel Robinson :— 

“ Two hundred and forty-five tenants, 
many of whom were a few years since in a 
state bordering on pauperism, the occupiers 
of small holdings of from ten to twenty 
plantation acres each, have, by their own 
free labour, with the society’s aid, improved 
their farms to the value of 4396Z.; 605/. having 
been added during the last year, being at the 
rate of 17/. 18s. per tenant for the whole 
term, and 21. 9s. for the past year; the benefit 
of which improvements each tenant will 
enjoy during the unexpired term of a thirty- 
one years’ lease. 

“ These 245 tenants and their families have, 
by spade industry, reclaimed and brought 
into cultivation 1032 plantation acre* of land, 
previously unproductive mountain waste, upon 
which they grew, last year, crops valued by 
competent practical persons at 3896/., being 
in the proportion of 15/. 18s. each tenant; 
and their I've stock, consisting of cattle, 
horses, sheep, and pigs, now actually upon 
the estates, is valued, according to the pre¬ 
sent prices of the neighbouring markets, at 




204 BOOK II. CIL* 

were sold, the funds of the association 
would he liberated, and it might re¬ 
commence operations in some other 
quarter, 

§ 2. Thus far I had written in 
1856. Since that time the great crisis 
of Irish industry has made further 

4 / 

progress, and it is necessary to con¬ 
sider how its present state affects the 
opinions, on prospects or on practical 
measures, expressed in the previous 
' part of this chapter. 

The principal change in the situa¬ 
tion consists in the great diminution, 
holding out a hope of the entire ex¬ 
tinction, of cottier tenure. The enor¬ 
mous decrease in the number of small 
holdings, and increase in those of a 
medium size, attested by the statistical 
returns, sufficiently proves the general 
fact, and all testimonies show that the 
tendency still continues.* It is proba- 

4162L, of which 1304Z. has been added since 
February 1844, being at the rate of 16/. 19s. 
for the whole period, and hi. 6s. for the last 
year; during which time their stock has thus 
increased in value a sum equal to their present 
annual rent ; and by the statistical tables and 
I’eturns referred to in previous reports, it is 
proved that the tenants, in general, improve 
their little farms, and increase their cultiva¬ 
tion and crops, in nearly direct proportion to 
the number of available working persons of 
both sexes, of which their families consist.” 

There cannot be a stronger testimony to 
the superior amount of gross, and even of net 
produce, raised by small farming under any 
tolerable system of landed tenure; and it 
is worthy of attention that the industry 
and zeal were greatest among the smaller 
holders; Colonel Robinson noticing, as ex¬ 
ceptions to the remarkable and rapid pro¬ 
gress of improvement, some tenants who 
were “ occupants of larger farms than twenty 
acres, a class too often deficient in the endur¬ 
ing industry indispensable for the successful 
prosecution of mountain improvements.” 

* There is, however, a partial counter- 
current, of w hich I have not seen any public 
notice. “ A class of men, not very numerous, 
but sufficiently so to do much mischief, have, 
through the Landed Estates Court, got into 
possession of land in Ireland, who, of all 
classes, are least likely to recognise the 
duties of a landlord’s position. These are 
small traders in towns, who by dint of sheer 
parsimony, frequently combined with 
money-lending at usurious rates, have suc¬ 
ceeded, in the course of a long life, in scrap¬ 
ing together as much money as will enable 
them to buy fifty or a hundred acres of land. 
These people never think of turning far¬ 
mers, but, proud of their position as land¬ 
lords, proceed to turn it to the utmost 


AFTER X. § 2. 

ble that the repeal of the corn laws, 
necessitating a change in the exports 
of Ireland from the products of tillage 
to those of pasturage, would of itself 
have sufficed to bring about this revo¬ 
lution in tenure. A grazing farm can 
only be managed by a capitalist farmer, 

account. An instance of this kind came 
under my notice lately. The tenants on the 
property were, at the time of the purchase, 
seme twelve years ago, in a tolerably com¬ 
fortable state. Within that period their 
rent has been raised three several times; and 
it is now, as I am informed by the priest of 
the district, nearly double its amount at the 
commencement of the present proprietor’s 
reitrn. The result is that the people, who 
were formerly in tolerable comfort, are 
now reduced to poverty : two of them have 
left the property and squatted near an adja¬ 
cent turf bog, where they exist trusting for 
support to occasional jobs. If this man is 
not shot, he will injure himself through the 
deterioration of his property, but meantime 
he has been getting eight or ten per cent on 
his purchase-money. This is by no means a 
rare case. The scandal which such occur¬ 
rences cause, casts its reflection on transac¬ 
tions of a wholly different and perfectly 
legitimate kind, w T here the removal of the 
tenants is simply an act of mercy for all 
parties. 

“ The anxiety of landlords to get rid of 
cottiers is also to some extent neutralized by 
the anxiety of middlemen to get them. About 
one-fourth of the whole land of Ireland is 
held under long leases; the rent received 
when the lease is of long standing, being 
generally greatly under the real value of the 
land. It rarely happens that land thus held 
is cultivated by the owner of the lease ; in¬ 
stead of this, he sifblets it at a rack rent to 
small men, and lives on the excess of the rent 
which he receives over that which he pays. 
Some of these leases are always running 
out; and as they draw towards their close, 
the middleman has no other interest in the 
land than, at any cost of permanent deterio¬ 
ration, to get the utmost out of it during the 
unexpired period of the term. For this pur¬ 
pose the small cottier tenants precisely an¬ 
swer his turn. Middlemen in this position 
are as anxious to obtain cottiers as tenants, 
as the landlords are to be rid of them ; and 
the result is a transfer of this sort of tenant 
from one class of estates to the other. The 
movement is of limited dimensions, but it 
does exist, and so far as it exists, neutralizes 
the general tendency. Perhaps it may be 
thought that this system will reproduce 
itself; that the same motives which led to 
the existence of middlemen will perpetuate 
the class; but there is no danger of this. 
Landowners are now perfectly alive to the 
ruinous consequences of this system, how¬ 
ever convenient for a time ; and a clause 
against sub-letting is now becoming a matter 
of course in every lease.”—( Private Commu¬ 
nication from Frofesnor Cairnet.) 



MEANS OF ABOLISHING COTTIER TENANCY. 205 


or by the landlord. But a change in¬ 
volving so great a displacement of the 
population, has been immensely facili¬ 
tated and made more rapid by the vast 
emigration, as well as by that greatest 
boon ever conferred on Ireland by any 
Government, the Encumbered Estates 
Act; the best provisions of which have 
since, through the Landed Estates 
Court, been permanently incorporated 
into the social system of the country. 
The greatest part of the soil of Ireland, 
there is reason to believe, is now farmed 
either by the landlords, or by small 
capitalist farmers. That these far¬ 
mers are improving in circumstances, 
and accumulating capital, there is con¬ 
siderable evidence, in particular the 
great increase of deposits in the banks 
of which they are the principal cus¬ 
tomers. So far as that class is con¬ 
cerned, the chief thing still wanted is 
security of tenure, or assurance of 
compensation for improvements. The 
means of supplying these wants are 
now engaging the attention of the 
most competent minds; Judge Long- 
field’s address, in the autumn of 1864, 
and the sensation created by it, are an 
era in the subject, and a point lias now 
been reached when we may confidently 
expect that within a very few years 
something effectual will be done. 

But what, meanwhile, is the con¬ 
dition of the displaced cottiers, so far 
as they have not emigrated ; and of the 
whole class who subsist by agricultural 
labour, without the occupation of any 
land ? As yet, their state is one of 
great poverty, with hut slight prospect 
of improvement. Money wages, in¬ 
deed, have risen much above the 
wretched level of a generation ago : hut 
the cost of subsistence has also risen 
bo much above the old potato standard, 
that the real improvement is not equal 
to the nominal; and according to the 
best information to which I have access, 
there is little appearance of an im¬ 
proved standard of living among the 
class. The population, in fact, reduced 
though it be, is still far beyond what 
the country can support as a mere 
grazing district of England. It may 
not, perhaps, be strictly true that, if 
the present number of inhabitants are 


to be maintained at home, it can only 
he either on the old vicious system of 
cottierism, or as small proprietors grow¬ 
ing their own food. 4'he lands which 
will remain under tillage would, no 
doubt, if sufficient security for outlay 
were given, admit of a more extensive 
employment of labourers by the small 
capitalist farmers; and this, in the 
opinion of some competent judges, 
might enable the country to support the 
present number of its population in 
actual existence. But no one will pre¬ 
tend that this resource is sufficient to 
maintain them in any condition in 
which it is fit that the great body of 
the peasantry of a country should 
exist. Accordingly the emigration, 
which for a time had fallen off, has, 
under the additional stimulus of bad 
seasons, revived in all its strength. It 
is calculated that within the year 1864 
not less than 100,000 emigrants left 
the Irish shores. As far as regards 
the emigrants themselves and their 
posterity, or the general interests of 
the human race, it would be folly to 
regret this result. The children of the 
immigrant Irish receive the education 
of Americans, and enter, more rapidly 
and completely than would have Ocen 
possible in the country of their de¬ 
scent, into the benefits of a higher 
state of civilization. In twenty or 
thirty years they are not mentally dis¬ 
tinguishable from other Americans. 
The loss, and the disgrace, are 
England’s: and it is the English 
people and government whom it chiefly 
concerns to ask themselves, how far 
it will be to their honour and advan¬ 
tage to retain the mere soil of Ire¬ 
land, but to lose its inhabitants. With 
the present feelings of the Irish people, 
and the direction which their hope of 
improving their condition seems to be 
permanently taking, England, it is pro¬ 
bable, has only the choice between the 
depopulation of Ireland, and the con¬ 
version of a part of the labouring 
population into peasant proprietors. 
The truly insular ignorance of her 
public men respecting a form of agri¬ 
cultural economy whi. h predominates 
in nearly every other civilized country, 
makes it only too probable that she 






BOOK II. CHAPTER X. § 2. 


206 

will choose the worse side of the alter¬ 
native. Yet there are germs of a ten¬ 
dency to the formation of peasant pro¬ 
prietors on Irish soil, which require 
only the aid of a friendly legislator to 
foster them ; as is shown in the follow¬ 
ing extract from a private communica¬ 
tion by my eminent and valued friend, 
Professor Cairnes:— 

“ On the sale, some eight or ten 
years ago, of the Tliomond, Portar- 
lington, and Kingston estates, in the 
Encumbered Estates Court, it was ob¬ 
served that a considerable number of 
occupying tenants purchased the fee 
of their farms. I have not been able 
to obtain any information as to what 
followed that proceeding—whether the 
purchasers continued to farm their 
small properties, or under the mania of 
landlordism tried to escape from their 
former mode of life. But there are 
other facts which have a bearing on 
this question. In those parts of the 
country where tenant-right prevails, 
the prices given for the goodwill of a 
farm are enormous. The following 
figures, taken from the schedule of an 
estate in the neighbourhood of Newry, 
now passing through the Landed 
Estates Court, will give an idea, but 
a very inadequate one, of the prices 
which this mere customary right gene¬ 
rally fetches. 

“ Statement showing the prices at 
which the tenant-right of certain farms 
near Newry was sold:— 



Acres. 

Bent. 

Purchase-money 
of tenant-right. 

Lot 1 

23 

... £74 

• •• 

£33 

2 

24 

... 77 


240 

3 

13 

... 39 


110 

4 

14 

... 34 


85 

5 

10 

... 33 


172 

6 

5 

... 13 


75 

7 

8 

... 2-5 


130 

8 

11 

... 33 


130 

9 

2 

... 5 


5 


110 

£334 


£980 


** The prices here represent on the 
whole about three years’ purchase of 
the rental: but this, as I have said, 
gives but an inadequate idea of that 
which is frequently, indeed of that 
which is ordinarily, paid. The right, 
being purely customary, will vary in 
value with the confidence generally re¬ 


posed in the good faith of the land¬ 
lord. In the present instance, circum¬ 
stances have come to light in the course 
of the proceedings connected with the 
sale of the estate, which give reason to 
believe that the confidence in this case 
was not high ; consequently, the rates 
above given may be taken as consider¬ 
ably under those which ordinarily pre¬ 
vail. Cases, as I am informed on the 
highest authority, have in other parts 
of the country come to light, also in the 
Landed Estates Court, in which the 
price given for the tenant-right was 
equal to that of the whole fee of the 
land. It is a remarkable fact that 
people should be found to give, say 
twenty or twenty-five years’ purchase, 
for land which is still subject to a good 
round rent. Why, it will be asked, do 
they not purchase land out and out for 
the same, or a slightly larger, sum ? 
The answer to this question, I believe, 
is to be found in the state of our land 
laws. The cost of transferring land in 
small portions is, relatively to the pur¬ 
chase money, very considerable, even 
in the Landed Estates Court; while 
the goodwill of a farm may be trans¬ 
ferred without any cost at all. The 
cheapest conveyance that could be 
drawn in that Court, where the utmost 
economy, consistent with the present 
mode of remunerating legal services, 
is strictly enforced, would, irrespective 
of stamp duties, cost 10Z.—a very 
sensible addition to the purchase of a 
small peasant estate : a conveyance to 
transfer a thousand acres might not 
cost more, and would probably not cost 
much more. But in truth, the mere 
cost of conveyance represents but the 
least part of the obstacles which exist 
to obtaining land in small portions. A 
far more serious impediment is the 
complicated state of the ownership of 
land, which renders it frequently im¬ 
practicable to subdivide a property into 
such portions as would bring the land 
within the reach of small bidders. The 
remedy for this state of things, how¬ 
ever, lies in measures of a more radical 
sort than I fear it is at all probable 
that any House of Commons we are 
soon likely to see would even with 
patience consider. A registry of titles 









WAGES. 


may succeed in reducing this complex 
condition of ownership to its simplest 
expression; hut where real complica¬ 
tion exists, the difficulty is not to he 
got rid of by mere simplicity of form ; 
and a registry of titles—while the 
powers of disposition at present enjoyed 
by landowners remain undiminished, 
while eveiy settlor and testator has 
an almost unbounded licence to multi¬ 
ply interests in land, as pride, the 
passion for dictation, or mere whim 
may suggest—will, in my opinion, fail 
to reach the root of the evil. The 
effect of these circumstances is to place 
an immense premium upon large deal¬ 
ings in land—indeed in most cases 
practically to preclude all other than 
large dealings; and while this is the 
state of the law, the experiment of 
peasant proprietorship, it is plain, 


207 

cannot he fairly tried. The facts, how¬ 
ever, which I have stated show, I 
think, conclusively, that there is no 
obstacle in the disposition of the people 
to the introduction of this system.” 

I have concluded a discussion, which 
has occupied a space almost dispro- 
portioned to the dimensions of this 
work; and I here close the examina¬ 
tion of those simpler forms of social 
economy in which the produce of the 
land either belongs undividedly to one 
class, or is shared only between two 
classes. We now proceed to the hypo¬ 
thesis of a threefold division of the pro¬ 
duce, among labourers, landlords, and 
capitalists ; and in order to connect the 
coming discussion as closely as possible 
with those which have now for some 
time occupied us, I shall commence 
with the subject of Wages. 


CHAPTER XL 


OF WAGES 



§ 1. Under the bead of Wages are 
to be considered, first, the causes which 
determine or influence the wages of 
labour generally, and secondly, the 
differences that exist between the 
wages of different employments. It 
is convenient to keep these two classes 
of consideration separate ; and in dis¬ 
cussing the law of wages, to proceed 
in the first instance as if there were no 
other kind of labour than common un¬ 
skilled labour, of the average degree of 
hardness and disagreeableness. 

Wages, like other things, may be re¬ 
gulated either by competition or by 
custom. In this country there are few 
kinds of labour of which the remunera¬ 
tion would not be lower than it is, if the 
employer took the full advantage of com¬ 
petition. Competition, however, must be 
regarded, in the present state of society, 
as the principal regulator of wages, and 
custom or individual character only as 
a modifying circumstance, and that in 
a comparatively slight degree. 

Wages, then, depend mainly upon 


the demand and supply of labour; or 
as it is often expressed, on the propor¬ 
tion between population and capital. 
By population is here meant the num¬ 
ber only of the labouring class, or 
rather of those who work for hire ; and 
by capital, only circulating capital, and 
not even the whole of that, but the part 
which is expended in the direct pur¬ 
chase of labour. To this, however, 
must be added all funds which, with¬ 
out forming a part of capital, are paid 
in exchange for labour, such as the 
wages of soldiers, domestic servants, 
and all other unproductive labourers. 
There is unfortunately no mode of ex¬ 
pressing by one familiar term, the ag¬ 
gregate of what may be called the 
wages-fund of a country : and as the 
wages of productive labour form nearly 
the whole of that fund, it is usual to 
overlook the smaller and less important 
part, and to say that wages depend on 
population and capital. It will be con¬ 
venient to employ this expression, re¬ 
membering, however, to c< nsider ff as 





BOOK II. CHAPTER XI. § 2. 


208 

elliptical, and not as a literal statement 
of the entire truth. 

With these limitations of the terms, 
wages not only depend upon the relative 
amount of capital and population, but 
cannot, under the rule of competition, 
be affected by anything else. Wages 
(meaning, of course, the general rate) 
cannot rise, but by an increase of the 
aggregate funds employed in hiring 
labourers, or a diminution in the num¬ 
ber of the competitors for hire ; nor fall, 
except either by a diminution of the 
funds devoted to paying labour, or by 
an increase in the number of labourers 
to be paid. 

§ 2. There are, however, some 
facts in apparent contradiction to this 
doctrine, which it is incumbent on us 
to consider and explain. 

For instance, it is a common saying 
that wages are high when trade is 
good. The demand for labour in any 
particular employment is more press¬ 
ing, and higher wages are paid, when 
there is a brisk demand for the com¬ 
modity produced; and the contrary 
when there is what is called a stagna¬ 
tion : then workpeople are dismissed, 
and those who are retained must sub¬ 
mit to a reduction of wages : though in 
these cases there is neither more nor 
less capital than before. This is true; 
and is one of those complications in the 
concrete phenomena, which obscure 
and disguise the operation of general 
causes ; but it is not really inconsistent 
with the principles laid down. Capi¬ 
tal which the owner does not employ 
in purchasing labour, but keeps idle 
in his hands, is the same thing to the 
labourers, for the time being, as if it 
did not exist. All capital is, from the 
variations of trade, occasionally in 
this state. A manufacturer, finding 
a slack demand for his commodity, 
forbears to employ labourers in in¬ 
creasing a stock which he finds it diffi¬ 
cult to dispose of; or if he goes on un¬ 
til all his capital is locked up in unsold 
goods, then at least he must of neces¬ 
sity pause until he can get paid for 
some of them. But no one expects 
either of these states to be permanent; 
if he did, he would at the first oppor¬ 


tunity remove his capital to some 
other occupation, in which it would 
still continue to employ labour. The 
capital remains unemployed for a 
time, during which the labour market 
is overstocked, and wages fall. After¬ 
wards the demand revives, and per¬ 
haps becomes unusually brisk, en¬ 
abling the manufacturer to sell his 
commodity even faster than he can 
produce it: his whole capital is then 
brought into complete efficiency, and if 
he is able, he borrows capital in addi¬ 
tion, which would otherwise have gone 
into some other employment. At such 
times wages, in his particular occupa¬ 
tion, rise. If we suppose, what in strict¬ 
ness is not absolutely impossible, that 
one of these fits of briskness or of stag¬ 
nation should affect all occupations at 
the same time, wages altogether might 
undergo a rise or a fall. These, however, 
are but temporary fluctuations: the 
capital now lying idle will next year be 
in active employment, that which is this 
year unable to keep up with the de¬ 
mand will in its turn be locked up in 
crowded warehouses; and wages in 
these several departments will ebb and 
flow accordingly: but nothing can per¬ 
manently alter general wages, except 
an increase or a diminution of capital 
itself (always meaning by the term, the 
funds of all sorts, destined for the pay¬ 
ment of labour) compared with the quan¬ 
tity of labour offering itself to be hired. 

Again, it is another common notion 
that high prices make high wages; 
because the producers and dealers, 
being better oft' can afford to pay more 
to their labourers. I have already said 
that a brisk demand, which causes 
temporary high prices, causes also tem¬ 
porary high wages. But high prices, 
in themselves, can only raise wages 
if the dealers, receiving more, are 
induced to save more, and make an 
addition to their capital, or at least 
to their purchases of labour. This 
is indeed likely enough to be the 
case; and if the high prices came di¬ 
rect from heaven, or even from abroad, 
the labouring class might be benefited, 
not by the high prices themselves, but 
by the increase of capital occasioned 
by them. The same effect, however, 




WAGES. 209 


is often attributed to a high price which 
is the result of restrictive laws, or 
which is in some way or other to he 
paid by the remaining members of the 
community; they having no greater 
means than before to pay it with. 
High prices of this sort, if they benefit 
one class of labourers, can only do so 
at the expense of others ; since if the 
dealers by receiving high prices are 
enabled to make greater savings, or 
otherwise increase their purchases of 
labour, all other people by paying those 
high prices, have their means of saving, 
or of purchasing labour, reduced in an 
equal degree; and it is a matter of 
accident whether the one alteration or 
the other will have the greatest effect 
on the labour market. Wages will 
probably be temporarily higher in the 
employment in which prices have 
risen, and somewhat lower in other 
employments : in which case, while the 
first half of the phenomenon excites 
notice, the other is generally over¬ 
looked, or if observed, is not ascribed 
to the cause which really produced it. 
Nor will the partial rise of wages last 
long : for though the dealers in that 
one employment gain more, it does not 
follow that there is room to employ a 
greater amount of savings in their own 
business: their increasing capital will 
probably flow over into other employ¬ 
ments, and there counterbalance the 
diminution previously made in the de¬ 
mand for labour by the diminished 
savings of other classes. 

Another opinion often maintained is, 
that wages (meaning of course money 
wages) vary with the price of food; 
rising when it rises, and falling when it 
falls. This opinion is, I conceive, only 
partially true: and in so far as true, 
in no way affects the dependence of 
wages on the proportion between 
capital and labour: since the price of 
food, when it affects wages at all, affects 
them through that law. Dear or 
cheap food caused by variety of seasons 
does not affect wages (unless they are 
artificially adjusted to it by law or 
charity) : or rather, it has some ten¬ 
dency to affect them in the contrary 
way to that supposed ; since in times of 
scarcity people generally compete more 
P.E. 


violently for employment, and lower 
the labour market against themselves. 
But dearness or cheapness of food, 
when of a permanent character, and 
capable of being calculated on before¬ 
hand, may affect wages. In the first 
place, if the labourers have, as is often 
the case, no more than enough to keep 
them in working condition, and enable 
them barely to support the ordinary 
number of children, it follows that if 
food grows permanently dearer without 
a rise of wages, a greater number of 
the children will prematurely die ; and 
thus wages will ultimately be higher, 
but only because the number of people 
will be smaller, than if food had re¬ 
mained cheap. But, secondly, even 
though wages were high enough to 
admit of food’s becoming more costly 
without depriving the labourers and 
their families of necessaries; though 
they could bear, physically speaking, 
to be worse off, perhaps they would 
not consent to be so. They might 
have habits of comfort which were to 
them as necessaries, and sooner than 
forego which, they would put an addi¬ 
tional restraint on their power of multi¬ 
plication ; so that wages would rise, 
not by increase of deaths but by dimi¬ 
nution of births. In these cases, then, 
wages do adapt themselves to the price 
of food, though after an interval of 
almost a generation. Mr. Eicardo 
considers these two cases to compre¬ 
hend all cases. He assumes, that there 
is everywhere a minimum rate of 
wages : either the lowest with which 
it is physically possible to keep up the 
population, or the lowest with which 
the people will choose to do so. To 
this minimum he assumes that the 
general rate of wages always tends; 
that they can never be lower, beyond 
the length of time required for a 
diminished rate of increase to make 
itself felt, and can never long continue 
higher. This assumption contains 
sufficient truth to render it admissible 
for the purposes of abstract science; 
and the conclusion which Mr. Kicardo 
draws from it, namely, that wages in 
the long run rise and fall with the per¬ 
manent rise of food, is, like almost all 
his conclusions, true hypothetically, 





210 BOOK II. CHAPTER XI. § 2. 


that is, granting the suppositions from 
which he sets out. But in the appli¬ 
cation to practice, it is necessary to 
consider that the minimum of which 
he speaks, especially when it is not a 
physical, hut what may be termed a 
moral minimum, is itself liable to vary. 
If wages were previously so high that 
they could bear reduction, to which the 
obstacle was a high standard of com¬ 
fort habitual among the labourers, a 
rise of the price of food, or any other 
disadvantageous change in their cir¬ 
cumstances, may operate in two ways : 
it may correct itself by a rise of wages, 
brought about through a gradual effect 
on the prudential check to population ; 
or it may permanently lower the 
standard of living of the class, in case 
their previous habits in respect of popu¬ 
lation prove stronger than their pre¬ 
vious habits in respect of comfort. In 
that case the injury done to them will 
be permanent, and their deteriorated 
condition will become a new minimum, 
tending to perpetuate itself as the more 
ample minimum did before. It is to be 
feared that of the two modes in which the 
cause may operate, the last is the most 
frequent, or at all events sufficiently 
so, to render all propositions ascribing a 
seif-repairing quality to the calamities 
which befal the labouring classes, prac¬ 
tically of no validity. There is con¬ 
siderable evidence that the circum¬ 
stances of the agricultural labourers in 
England have more than once in our 
history sustained great permanent de¬ 
terioration, from causes which operated 
by diminishing the demand for labour, 
and which, if population had exercised 
its power of self-adjustment in obedi¬ 
ence to the previous standard of com¬ 
fort, could only have had a temporary 
effect: but unhappily the poverty in 
which the class was plunged during a 
long series of years, brought that pre¬ 
vious standard into disuse ; and the 
next generation, growing up without 
having possessed those pristine com¬ 
forts, multiplied in turn without any 
attempt to retrieve them.* 

* See the historical sketch of the condition 
of the English peasantry, prepared from the 
best authorities by Mr. William Thornton, 


The converse case occurs when, by 
improvements in agriculture, the repeal 
of corn laws, or other such causes, 
the necessaries of the labourers are 
cheapened, and they are enabled with 
the same wages, to command greater 
comforts than before. Wages will not 
fall immediately; it is even possible 
that they may rise : but they will fall 
at last, so as to leave the labourers no 
better off than before, unless, during 
this interval of prosperity, the standard 
of comfort regarded as indispensable by 
the class, is permanently raised. Un¬ 
fortunately this salutary effect is by no 
means to be counted upon : it is a much 
more difficult thing to raise, than to 
lower, the scale of living which the 
labourers wall consider as more indis¬ 
pensable than marrying and having a 
family. If they content themselves 
with enjoying the greater comfort while 
it lasts, but do not learn to require it, 
they will people down to their old scale 
of living. If from poverty their children 
had previously been insufficiently fed 
or improperly nursed, a greater number 
will now be reared, and the competi¬ 
tion of these, when they grow up, will 
depress wages, probably in full pro¬ 
portion to the greater cheapness of 
food. If the effect is not produced in 
this mode, it will be produced by earlier 
and more numerous marriages, or by 
an increased number of births to a 
marriage. According to all experi¬ 
ence, a great increase invariably takes 
place in the number of marriages, in 
seasons of cheap food and full employ¬ 
ment. I cannot, therefore, agree in 
the importance so often attached to the 
repeal of the corn law's, considered 
merely as a labourer’s question, or to 
any of the schemes, of which some one 
or other is at all times in vogue, for 
making the labourers a very little better 
off. r l kings which only affect them a very 
little, make no permanent impression 
upon their habits and requirements, 
and they soon slide back into their 

in his work entitled Over-Population and its 
Remedy: a work honourably distinguished 
from most others which have been published 
in the present generation, by its rational 
treatment of questions affecting the econo¬ 
mical condition of the labouring classes. 



WAGES. 


former state. To produce permanent 
advantage, the temporary cause operat¬ 
ing upon them must he sufficient to 
make a great change in their condi¬ 
tion—a change such as will be felt 
for many years, notwithstanding any 
stimulus which it may give during one 
generation to the increase of people. 
When, indeed, the improvement is of 
this signal character, and a generation 
grows up which has always been used 
to an improved scale of comfort, the 
habits of this new generation in respect 
to population become formed upon a 
higher minimum, and the improvement 
in their condition becomes permanent. 
Of cases in point, the most remark¬ 
able is France after the Revolution. 
The majority of the population being 
suddenly raised from misery, to inde¬ 
pendence and comparative comfort; 
the immediate effect was that popula¬ 
tion, notwithstanding the destructive 
wars of the period, started forward 
with unexampled rapidity, partly be¬ 
cause improved circumstances enabled 
many children to be reared who would 
otherwise have died, and partly from 
increase of births. The succeeding 
generation however grew up with habits 
considerably altered ; and though the 
country was never before in so pros¬ 
perous a state, the annual number of 
births is now nearly stationary,* and 
the increase of population extremely 
slow.f 

* Supra, pp. 177, 178. 

t A similar, though not an equal improve¬ 
ment in the standard of living took place 
among the labourers of England during the 
remarkable fifty years from 1715 to 1765, 
which were distinguished by such an extra¬ 
ordinary succession of fine harvests (the 
years of decided deficiency not exceeding 
five in all that period) that the average 
price of wheat during those yeai’s was much 
lower than during the previous half century. 
Mr. Malthus computes that on the average 
of sixty years preceding 1720, the labourer 
could purchase with a day’s earnings only 
two-thirds of a peck of wheat, while from 
1720 to 1750 he could purchase a whole peck. 
The average price of wheat according to the 
Eton tables, for fifty years ending with 1715, 
was 41s. 7|d. the quarter, and for the last 
twenty-three of these, 45s. 8d., while for the 
fifty years following, it was no more than 
34s. lid. So considerable an improvement 
in the condition of the labouring class, 
though arising from the accidents of seasons, 
yet continuing for more than a generation. 


211 

§ 3. < Wages depend, then, on the 
proportion between the number of the 
labouring population, and the capital 
or other funds devoted to the purchase 
of labour; we will say, for shortness, 
the capital. If wages are higher at 
one time or place than at another, if 
the subsistence and comfort of the class 
of hired labourers are more ample, it 
is for no other reason than because 
capital bears a greater proportion to 
population. It is not the absolute 
amount of accumulation or of produc¬ 
tion, that is of importance to the 
labouring class; it is not the amount 
even of the funds destined for distri¬ 
bution among the labourers: it is the 
proportion between those funds and the 
numbers among whom they are shared. 
The condition of the class can be bet¬ 
tered in no other way than by altering 
that proportion to their advantage: 
and every scheme for their benefit, 
which does not proceed on this as its 
foundation, is, for all permanent pur¬ 
poses, a delusion. 

In countries like North America and 
the Australian colonies, where the 
knowledge and arts of civilized life, 
and a high effective desire of accumu¬ 
lation, co-exist with a boundless extent 
of unoccupied land; the growth of 
capital easily keeps pace with the 
utmost possible increase of population, 
and is chiefly retarded by the im¬ 
practicability of obtaining labourers 
enough. All, therefore, who can pos¬ 
sibly be born, can find employment 
without overstocking the market: 
every labouring family enjoys in abun¬ 
dance the necessaries, many of the 
comforts, and some of the luxuries of 
life ; and, unless in case of individual 
misconduct, or actual inability to work, 
poverty does not, and dependence needs 
not, exist. A similar advantage, 
though in a less degree, is occasionally 

had time to work a change in the habitual 
requirements of the labouring class; and 
this period is always noted as the date of “ a 
marked improvement of the quality of the 
food consumed, and a decided elevation in 
the standard of their comforts and conve¬ 
niences.”—(Malthus, Principles of Political 
Economy, p. 225.) For the character of the 
period, see Mr. Tooke’s excellent History of 
Prices , vol. i. pp. 38 to 61, arid for the prices 
of corn, the Appendix to that work. 



212 BOOK II. CHAPTER XI. § 3. 


enjoyed by some special class of la¬ 
bourers in old countries, from an extra¬ 
ordinarily rapid growth, not of capital 
generally, but of the capital employed 
in a particular occupation. So gigantic 
has been the progress of the cotton 
manufacture since the inventions of 
Watt and Arkwright, that the capital 
engaged in it has probably quadrupled 
in the time which population requires 
for doubling. While, therefore, it has 
attracted from other employments 
nearly all the hands which geogra¬ 
phical circumstances and the habits or 
inclinations of the people rendered 
available ; and while the demand it 
created for infant labour has enlisted 
the immediate pecuniary interest of 
the operatives in favour of promoting, 
instead of restraining, the increase of 
population; nevertheless wages in the 
great seats of the manufacture are 
generally so high, that the collective 
earnings of a family amount, on an 
average of years, to a very satisfactory 
sum ; and there is, as yet, no sign of 

{ )ermanent decrease, while the effect 
las also been felt in raising the genei'al 
standard of agricultural wages in the 
counties adjoining. 

But those circumstances of a country, 
or of an occupation, in which popula¬ 
tion can with impunity increase at its 
utmost rate, are rare, and transitory. 
Very few are the countries presenting 
the needful union of conditions. Either 
the industrial arts are backward and 
stationary, and capital therefore in¬ 
creases slowly ; or the effective desire 
of accumulation being low, the increase 
soon reaches its limit; or, even though 
botli these elements are at their highest 
known degree, the increase of capital 
is checked, because there is not fresh 
land to be resorted to, of as good 
quality as that already occupied. 
Though capital should for a time 
double itself simultaneously with popu¬ 
lation, if all this capital and popula¬ 
tion are to find employment on the 
same land, they cannot without an un¬ 
exampled succession of agricultural 
inventions continue doubling the pro¬ 
duce ; therefore, if wages do not fall, 
profits must; and when profits fall, 
increase of capital is slackened. Be¬ 


sides, even if wages did not fall, the 
price of food (as will be shown more 
fully hereafter) would in these circum¬ 
stances necessarily rise ; which is equi¬ 
valent to a fall of wages. 

Except, therefore, in the very pecu¬ 
liar cases which I have just noticed, 
of which the only one of any practical 
importance is that of a new colony, or 
a country in circumstances equivalent 
to it; it is impossible that population 
should increase at its utmost rate 
without lowering wages. Nor will the 
fall be stopped at any point, short of 
that which either by its physical or its 
moral operation, checks the increase of 
population. In no old country, there¬ 
fore, does population increase at any¬ 
thing like its utmost rate ; in most, at 
a very moderate rate: in some countries 
not at all. These facts are only to be 
accounted for in two ways. Either 
the whole number of births which 
nature admits of, and which happen 
in some circumstances, do not take 
place ; or if they do, a large proportion 
of those who are born, die. The re¬ 
tardation of increase results either from 
mortality or prudence ; from Mr. Mal- 
thus’s positive, or from his preventive 
check : and one or the other of these 
must and does exist, and very power¬ 
fully too, in all old societies. Wherever 
population is not kept down by the pru¬ 
dence either of individuals or of the state, 
it is kept down by starvation or disease. 

Mr. Malthus has taken great pains 
to ascertain, for almost every country 
in the world, which of these checks it 
is that operates: and the evidence 
which he collected on the subject, in 
his Essay on Population, may even 
now be read with advantage. Through¬ 
out Asia, and formerly in most Euro¬ 
pean countries in which the labouring 
classes were not in personal bondage, 
there is, or was, no restrainer of popu¬ 
lation but death. The mortality was 
not always the result of poverty: much 
of it proceeded from unskilful and care¬ 
less management of children, from un¬ 
cleanly and otherwise unhealthy habits 
of life among the adult population, and 
from the almost periodical occurrence 
of destructive epidemics. Throughout 
Europe these causes of shortened life 



WAGES. 


have mucli diminished, hut they have 
not ceased to exist. Until a period 
not very remote, hardly any of our 
large towns kept up its population, in¬ 
dependently of the stream always 
flowing into them from the rural dis¬ 
tricts : this was still true of Liverpool 
until very recently; and even in Lon¬ 
don, the mortality is larger, and the 
average duration of life shorter, than 
in rural districts where there is much 
greater poverty. In Ireland, epidemic 
fevers, and deaths from the exhaustion 
of the constitution by insufficient 
nutriment, have always accompanied 
even the most moderate deficiency of 
the potato crop. Nevertheless, it cannot 
now be said that in any part of Europe, 
population is principally kept down by 
disease, still less by starvation, either 
in a direct or in an indirect form. The 
agency by which it is limited is chiefly 
preventive, not (in the language of 
Mr. Malthus) positive. But the pre¬ 
ventive remedy seldom, I believe, con¬ 
sists in the unaided operation of 
prudential motives on a class wholly 
or mainly composed of labourers for 
hire, and looking forward to no other 
lot. In England, for example, I much 
doubt if the generality of agricultural 
labourers practise any prudential re¬ 
straint whatever. They generally 
marry as early, and have as many 
children to a marriage, as they would 
or could do if they were settlers in the 
United States. During the generation 
which preceded the enactment of the 
present Poor Law, they received the 
most direct encouragement to this sort 
of improvidence : being not only as¬ 
sured of support, on easy terms, when¬ 
ever out of employment, but even when 
in employment, very commonly re¬ 
ceiving from the parish a weekly allow¬ 
ance proportioned to their number of 
children ; and the married with large 
■'families being always, from a short¬ 
sighted economy, employed in prefe¬ 
rence to the unmarried; which last 
premium on population still exists. 
Under such prompting, the rural 
labourers acquired habits of reckless¬ 
ness, which are so congenial to the un¬ 
cultivated mind, that in whatever 
manner urodueed, they in general long 


213 

survive their immediate causes. There 
are so many new elements at work in 
society, even in those deeper strata 
which are inaccessible to the mere 
movements on the surface, that it is 
hazardous to affirm anything positive 
on the mental state or practical im¬ 
pulses of classes and bodies of men, 
when the same assertion may be true 
to-day, and may require great modifi¬ 
cation in a few years time. It does, 
however, seem, that if the rate of in¬ 
crease of population depended solely 
on the agricultural labourers, it would, 
as far as dependent on births, and un¬ 
less repressed by deaths, be as rapid 
in the southern counties of England 
as in America. The restraining prin¬ 
ciple lies in the very great proportion 
of the population composed of the 
middle classes and the skilled artizans, 
who in this country almost equal in 
number the common labourers, and on 
whom prudential motives do, in a con¬ 
siderable degree, operate. 

§ 4. Where a labouring class who 
have no property but their daily wages, 
and no hope of acquiring it, refrain 
from over-rapid multiplication, the 
cause, I believe, has always hitherto 
been, either actual legal restraint, or a 
custom of some sort which, without 
intention on their part, insensibly 
moulds their conduct, or affords imme¬ 
diate inducements not to marry. It is 
not generally known in how many 
countries of Europe direct legal ob¬ 
stacles are opposed to improvident 
marriages. The communications made 
to the original Poor Law Commission 
by our foreign ministers and consuls in 
different parts of Europe, contain a 
considerable amount of information on 
this subject. Mr. Senior, in his pre¬ 
face to those communications,* says 
that in the countries which recognise a 
legal right to relief, “ marriage on the 
part of persons in the actual receipt of 
relief appears to be everywhere prohi¬ 
bited, and the marriage of those who 
are not likely to possess the means of 
independent support is allowed by very 

* Forming an Appendix (F) to the General 
Report of the Commissioners, and also pub¬ 
lished by authority as a separate volume. 



BOOK II. CHAPTER XI. § 5. 


214 

few. Thus we are told that in Norway 
no one can marry without ‘ showing, 
to the satisfaction of the clergyman, 
that he is permanently settled in such 
a manner as to offer a fair prospect 
that he can maintain a family.’ 

“ In Mecklenburg, that ‘ marriages 
are delayed by conscription in the 
twenty-second year, and military ser¬ 
vice for six years; besides, the parties 
must have a dwelling, without which 
a clergyman is not permitted to many 
them. The men marry at from twenty- 
five to thirty, the women not much 
earlier, as both must first gain by ser¬ 
vice enough to establish themselves.’ 

“ In Saxony, that ‘a man may not 
marry before he is twenty-one years 
old, if liable to serve in the army. In 
Dresden, professionists (by which word 
artizans are probably meant) may not 
marry until they become masters in 
their trade.’ 

“ In Wurtemberg, that ‘ no man is 
allowed to marry till his twenty-fifth 
year, on account of his military duties, 
unless permission be especially ob¬ 
tained or purchased: at that age he 
must also obtain permission, which is 
granted on proving that he and his 
wife would have together sufficient to 
maintain a family or to establish them¬ 
selves ; in large towns, say from 800 
to 1000 florins (from 66 1. 13s. Ad. to 
SAl. 3s. Ad.) ; in smaller, from 400 to 
500 florins: in villages, 200 florins 
(lfiZ. ISs. Ad.)' ”* 

The minister at Munich says, “ The 
great cause why the number of the 
poor is kept so low in this country 
arises from the prevention by law of 
marriages in cases in which it cannot 
be proved that the parties have reason¬ 
able means of subsistence ; and this 
regulation is in all places and at all 
times strictly adhered to. The effect 
of a constant and firm observance of 
this rule has, it is true, a considerable 
influence in keeping down the popula¬ 
tion of Bavaria, which is at present low 
for the extent of country, but it has a 
most salutary effect in averting extreme 
poverty and consequent misery.”f 

* Preface, p. xxxix. 

t Preface, p. xxxiii., or p. 554 of the Ap¬ 
pendix itself. 


At Lubeck, “ marriages among the 
poor are delayed by the necessity a 
man is under, first, of previously prov¬ 
ing that he is in a regular employ, 
work, or profession, that will enable 
him to maintain a wife : and secondly, 
of becoming a burgher, and equipping 
himself in the uniform of the burgher 
guard, which together may cost him 
nearly Al. v * At Frankfort, “ the go¬ 
vernment prescribes no age for marry¬ 
ing, but the permission to marry is 
only granted on proving a livelihood.”f 

The allusion, in some of these state¬ 
ments, to military duties, points out 
an indirect obstacle to marriage, in¬ 
terposed by the laws of some countries 
in which there is no direct legal re¬ 
straint. In Prussia, for instance, the 
institutions which compel every able- 
bodied man to serve for several years 
in the army, at the time of life at 
which imprudent marriages are most 
likely to take place, are probably a full 
equivalent, in effect on population, for 
the legal restrictions of the smaller 
German states. 

“ So strongly,” says Mr. Kay, “ do 
the people of Switzerland understand 
from experience the expediency of their 
sons and daughters postponing the 
time of their marriages, that the coun¬ 
cils of state of four or five of the most 
democratic of the cantons, elected, be 
it remembered, by universal suffrage, 
have passed laws by which all young 
persons who marry before they have 
proved to the magistrate of their dis¬ 
trict that they are able to support a 
family, are rendered liable to a heavy 
fine. In Lucerne, Argovie, Unterwal- 
den, and I believe, St. Gall, Schweitz, 
and Uri, laws of this character have 
been in force for many 3 'ears.”| 

§ 5. Where there is no general law 
restrictive of marriage, there are often 
customs equivalent to it. When the 
guilds or trade corporations of the 
Middle Ages were in vigour, their bye¬ 
laws or regulations were conceived 
with a very vigilant eye to the advan¬ 
tage which the trade derived from 
limiting competition : and they made 

* Appendix, p. 419. f Ibid. p. 567. 

J Kay, as before cited, i. 68. 






WAGES. 


it very effectually tlie interest of arti¬ 
sans not to marry until after passing 
through the two stages of apprentice 
and journeyman, and attaining the 
rank of master.* In Norway, where 
the labour is chiefly agricultural, it is 
forbidden to engage a farm-servant for 
less than a year; which was the 
general English practice until the 
poor laws destroyed it, by enabling 
the farmer to cast his labourers on 
parish pay whenever he did not imme¬ 
diately require their labour. In con¬ 
sequence of this custom, and of its 
enforcement by law, the whole of the 
rather limited class of agricultural 
labpurers in Norway have an engage¬ 
ment for a year at least, which if the 
parties are content with one another, 
naturally becomes a permanent engage¬ 
ment : hence it is known in every 
neighbourhood whether there is, or is 
likely to be, a vacancy, and unless 
there is, a young man does not marry, 
knowing that he could not obtain em¬ 
ployment. The custom still exists in 

* “ In general,” says Sismondi, “ the num¬ 
ber of masters in each corporation was fixed, 
and no one but a master could keep a shop, 
or buy and sell on his own account. Each 
master could only train a certain number of 
apprentices, whom he instructed in his trade; 
in some corporations he was only allowed 
one. Each master could also employ only a 
limited number of workmen, who were called 
companions, or journeymen; and in the 
trades in which he could only take one ap¬ 
prentice, he was only allowed to have one, or 
at most two journeymen. No one was al¬ 
lowed to buy, sell, or work at a trade, unless 
he w'as either an apprentice, a journeyman, 
or a master; no one could become a journey¬ 
man without having served a given number 
of years as an apprentice, nor a master, un¬ 
less he had served the same number of years 
as a journeyman, and unless he had also 
executed what was called his chef d’oeuvre, 

( masterpiece ) a piece of work appointed in 
his trade, and which was to be judged of by 
the corporation. It is seen that this organi¬ 
zation threw entirely into the hands of the 
masters the recruiting of the trade. They 
alone could take apprentices ; but they were 
not compelled to take any; accordingly they 
required to be paid, often at a very high 
rate, for the favour ; and a young man could 
not enter into a trade if he had not, at start¬ 
ing, the sum required to be paid for his ap¬ 
prenticeship, and the means necessary for his 
suppoi’t during that apprenticeship; since 
for four, five, or seven years, all his work 
belonged to his master. His dependence on 
the master during that time was complete; 
for the master’s will, or even caprice, could 


215 

Cumberland and Westmoreland, except 
that the term is half a year instead of 
a year; and seems to be still attended 
with the same consequences. The 
farm-servants are “ lodged and boarded 
in their masters’ houses, which they 
seldom leave until, through the death 
of some relation or neighbour, they 
succeed to the ownership or lease of a 
cottage farm. What is called surplus 
labour does not here exist.”* I have 
mentioned in another chapter the 
check to population in England during 
the last century, from the difficulty of 
obtaining a separate dwelling place.f 
Other customs restrictive of popula¬ 
tion might be specified : in some parts 
of Italy, it is the practice, according to 
Sismondi, among the poor, as it is well 
known to he in the higher ranks, that 
all but one of the sons remain unmar¬ 
ried. But such family arrangements are 
not likely to exist among day-labourers. 
They are the resource of small proprie¬ 
tors and metayers, for preventing too 
minute a subdivision of the land. 

close the door of a lucrative profession upon 
him. After the apprentice became ajourney- 
man he had a little more freedom ; he could 
engage with any master he chose, or pass 
from one to another; and as the condition of 
a journeyman w r as only accessible through 
apprenticeship, he now began to profit by the 
monopoly from which he had previously suf¬ 
fered, and was almost sure of getting well 
paid for a work w r hich no one else was 
allowed to perform. He depended, however, 
on the corporation for becoming a master, 
and did not, therefore, regard himself as 
being yet assured of his lot, or as having 
a pei*manent position. In general he did 
not marry until he had passed as a mas¬ 
ter. 

“ It is certain both in fact and in theory 
that the existence of trade corporations hin¬ 
dered, and could not but hinder, the birth of 
a superabundant population. By the sta¬ 
tutes of almost all the guilds, a man could not 
pass as a master before the age of twenty-five: 
but if he had no capital of his ow n, if he had 
not made sufficient savings, he continued to 
work as a journeyman much longer; some, 
perhaps the majority of artisans, remained 
journeymen all their lives. There was, 
however, scarcely an instance of their marry¬ 
ing before they w r ere received as masters: 
had they been so imprudent as to desire it, 
no father would have given his daughter to a 
man w'ithout a position .”—JSew Principles of 
Political Economy, book iv., ch. 10. See also 
Adam Smith, book i., ch. 10, part 2. 

* See Thornton on Over-Population, page 
18, and the authorities there cited, 
t Supra, p. 99. 



216 BOOK II. CHAPTER XI. § 6. 


In England generally there is now 
scarcely a relic of these indirect checks 
to population ; except that in parishes 
owned by one or a very small number 
of landowners, the increase of resident 
labourers is still occasionally obstructed, 
by preventing cottages from being 
built, or by pulling down those which 
exist; thus restraining the population 
liable to become locally chargeable, 
without any material effect on popula¬ 
tion generally, the work required in 
those parishes being performed by 
labourers settled elsewhere. The sur¬ 
rounding districts always feel them¬ 
selves much aggrieved by this practice, 
against which they cannot defend 
themselves by similar means, since a 
single acre of land owned by any one 
who does not enter into the combina¬ 
tion, enables him to defeat the attempt, 
very profitably to himself, by covering 
that acre with cottages. To meet 
these complaints it has already been 
under the consideration of Parliament 
to abolish parochial settlements, and 
make the poor rate a charge not on 
the parish, but on the whole union. 
If this proposition be adopted, which 
for other reasons is very desirable, 
it will remove the small remnant of 
what was once a check to population : 
the value of which, however, from the 
narrow limits of its operation, must 
now be considered very trifling. 

§ 6. In the case, therefore, of the 
common agricultural labourer, the 
checks to population may almost be 
considered as non-existent. If the 
growth of the towns, and of the capital 
there employed, by which the factory 
operatives are maintained at their 
present average rate of wages notwith¬ 
standing their rapid increase, did not 
also absorb a great part of the annual 
addition to the rural population, there 
seems no reason in the present habits 
of the people why they should not fall 
into as miserable a condition as the 
Irish previous to 1846; and if the 
market for our manufactures should, 1 
do not say fall off, but even cease to 
expand at the rapid rate of the last 
fifty years, there is no certainty that 
this fate may not be reserved for us. 


Without carrying our anticipations 
forward to such a calamity, which the 
great and growing intelligence of the 
factory population would, it may be 
hoped, avert, by an adaptation of their 
habits to their circumstances; the 
existing condition of the labourers of 
some of the most exclusively agricul¬ 
tural counties, Wiltshire, Somerset¬ 
shire, Dorsetshire, Bedfordshire, Buck¬ 
inghamshire, is sufficiently painful to 
contemplate. The labourers of these 
counties, with large families, and eight 
or perhaps nine shillings for their 
weekly wages when in full employment., 
have for some time been one of the 
stock objects of popular compassion : 
it is time that they had the benefit 
also of some application of common 
sense. 

Unhappily, sentimentality rather 
than common sense usually presides 
over the discussion of these subjects; 
and while there is a growing sensitive¬ 
ness to the hardships of the poor, and 
a ready disposition to admit claims in 
them upon the good offices of other 
people, there is an all but universal 
unwillingness to face the real difficulty 
of their position, or advert at all to the 
conditions which nature has made in¬ 
dispensable to the improvement of 
their physical lot. Discussions on the 
condition of the labourers, lamenta¬ 
tions over its wretchedness, denuncia¬ 
tions of all whd are supposed to be in¬ 
different to it, projects of one kind or 
another for improving it, were in no 
country and in no time of the world so 
rife as in the present generation ; but 
there is a tacit agreement to ignore 
totally the law of wages, or to dismiss 
it in a parenthesis, with such terms as 
“ hard-hearted Malthusianism as if 
it were not a thousand times more 
hard-hearted to tell human beings that 
they may, than that they may not, call 
into existence swarms of creatures who 
are sure to be miserable, and most 
likely to be depraved; and forgetting 
that the conduct, which it is reckoned 
so cruel to disapprove, is a degrading 
slavery to a brute instinct in one of 
the persons concerned, and most com¬ 
monly, in the other, helpless submis¬ 
sion to a revolting abuse of power. 



WAGES. 


So long as mankind remained in a 
semi-barbarous state, with tlie indolence 
and the few wants of the savage, it 
probably was not desirable that popu¬ 
lation should be restrained : the pres¬ 
sure of physical want may have been a 
necessary stimulus, in that stage of 
the human mind, to the exertion of 
labour and ingenuity required for ac¬ 
complishing that greatest of all past 
changes in human modes of existence, 
by which industrial life attained pre¬ 
dominance over the hunting, the pas¬ 
toral, and the military or predatory 
state. Want, in that age of the world, 
had its uses, as even slavery had; and 
there may be corners of the earth 
where those uses are not yet super¬ 
seded, though they might easily be so 
were a helping hand held out by more 
civilized communities. But in Europe 
the time, if it ever existed, is long 
past, when a life of privation had the 
smallest tendency to make men either 
better workmen or more civilized beings. 
It is, on the contrary, evident, that if 
the agricultural labourers were better 
off, they would both work more effi¬ 
ciently, and be better citizens. I ask, 
then, is it true, or not, that if their 
numbers were fewer they would obtain 
higher wages ? This is the question, 
and no other: and it is idle to divert 
attention from it, by attacking any 
incidental position of Malthus or some 
other writer, and pretending that to 
refute that, is to disprove the prin¬ 
ciple of population. Some, for instance, 
have achieved an easy victory over a 
passing remark of Air. Malthus, ha¬ 
zarded chiefly by way of illustration, 
that the increase of food may perhaps 
be assumed to take place in an arith¬ 
metical ratio, while population in¬ 
creases in a geometrical: when every 
candid reader knows that Mr. Malthus 
laid no stress on this unlucky attempt 
to give numerical precision to things 
which do not admit of it, and every 
person capable of reasoning must see 
that it is wholly superfluous to his 
argument. Others have attached im¬ 
mense importance to a correction which 
more recent political economists have 
made in the mere language of the 
earlier followers of Mr. Malthus. Seve¬ 


217 

ral writers have said that it is the 
tendency of population to increase 
faster than the means of subsistence. 
The assertion was true in the sense in 
which they meant it, namely that 
population would in most circumstances 
increase faster than the means of sub¬ 
sistence, if it were not checked either 
by mortality or by prudence. But in¬ 
asmuch as these checks act with un¬ 
equal force at different times and 
places, it was possible to interpret the 
language of these writers as if they 
had meant that population is usually 
gaining ground upon subsistence, and 
the poverty of the people becoming 
greater. Under this interpretation of 
their meaning, it was urged that the 
reverse is the truth : that as civiliza¬ 
tion advances, the prudential check 
tends to become stronger, and popula¬ 
tion to slacken its rate of increase, 
relatively to subsistence; and that 
it is an error to maintain that popula¬ 
tion, in any improving community, 
tends to increase faster than, or even 
so fast as, subsistence. The word 
tendency is here used in a totally dif¬ 
ferent sense from that of the writers 
who affirmed the proposition: but 
waving the verbal question, is it not 
allowed on both sides, that in old 
countries, population presses too closely 
upon the means of subsistence ? And 
though its pressure diminishes, the 
more the id ^as and habits of the poorest 
class of labourers can be improved, to 
which it is to be hoped that there is 
always some tendency in a progressive 
country, yet since that tendency has 
hitherto been, and still is, extremely 
faint, and (to descend to particulars) 
has not yet extended to giving to 
the Wiltshire labourers higher wages 
than eight shillings a week, the only 
thing which it is necessary to consider 
is, whether that is a sufficient and 
suitable provision for a labourer ? for if 
not, population does, as an existing 
fact, bear too great a proportion to the 
wages fund; and whether it pressed 
still harder or not quite so hard at 
some former period, is practically of 
no moment, except that, if the ratio 
is an improving one, there is the better 
hope that by proper aids and en- 




213 BOOK II. CHAPTER XII. § 1. 


couragements it may be made to im¬ 
prove more and faster. 

It is not, however, against reason, 
that the argument on this subject has 
to struggle ; hut against a feeling of 
dislike, which will only reconcile itself 
to the unwelcome truth, when every 
device is exhausted by which the 
recognition of that truth can he evaded. 
It is necessary, therefore, to enter into 
a detailed examination of these devices, 


and to force every position which is 
taken up by the enemies of the popula¬ 
tion principle, in their determination 
to find some refuge for the labourers, 
some plausible means of improving 
their condition, without requiring the 
exercise, either enforced or voluntary, 
of any self-restraint, or any greater 
control than at present over the animal 
power of multiplication. This will be 
the object of the next chapter. 


CHAPTER XII. 

OF POPULAR REMEDIES FOR LOW WAGES. 


§ 1. The simplest expedient which 
can be imagined for keeping the wages 
of labour up to the desirable point, 
would be to fix them by law : and this 
is virtually the object aimed at in a 
variety of plans which have at different 
times been, or still are, current, for 
remodelling the relation between la¬ 
bourers and employers. No one pro¬ 
bably ever suggested that wages should 
be absolutely fixed ; since the interests 
of all concerned, often require that they 
should be variable; but some have 
proposed to fix a minimum of wages, 
leaving the variations above that point 
to be adjusted by competition. Another 
plan, which has found many advocates 
among the leaders of the operatives, is 
that councils should be formed, which 
in Englandhave been called local boards 
of trade, in France “ conseils de prud’- 
hommes,” and other names; consisting 
of delegates from the workpeople and 
from the employers, who, meeting in 
conference, should agree upon a rate 
of wages, and promulgate it from 
authority, to be binding generally on 
employers and workmen ; the ground 
of decision being, not the state of the 
labour-market, but natural equity; to 
provide that the workmen shall have 
reasonable wages, and the capitalist 
reasonable profits. 

Others again (but these are rather 
philanthropists interesting themselves 
for the labouring classes, than the 


labouring people themselves) are shy 
of admitting the interference of au¬ 
thority in contracts for labour: they 
fear that if law' intervened, it would 
intervene rashly and ignorantly ; they 
are convinced that two parties, with 
opposite interests, attempting to adjust 
those interests by negotiation through 
their representatives on principles of 
equity, when no rule could be laid 
dowui to determine what w r as equitable, 
would merely exasperate their dif¬ 
ferences instead of healing them ; but 
what it is useless to attempt by the 
legal sanction, these persons desire to 
compass by the moral. Every em¬ 
ployer, they think, ought to give suffi¬ 
cient wages; and if he does it not wil¬ 
lingly, should be compelled to it by 
general opinion; the test of sufficient 
w-ages being their own feelings, or what 
they suppose to be those of the public. 
This is, I think, a fair representation 
of a considerable body of existing opi¬ 
nion on the subject. 

I desire to confine my remarks to 
the principle involved in all these sug¬ 
gestions, without taking into account 
practical difficulties, serious as these 
must at once be seen to be. I shall 
suppose that by one or other of these 
contrivances, wages could be kept 
above the point to which they would 
be brought by competition. This is 
as much as to say, above the highest 
rate which can be afforded by the 





POPULAR REMEDIES FOR LOW WAGES. 


existing capital consistently with em¬ 
ploying all the labourers. For it is a 
mistake to suppose that competition 
merely keeps clown wages. It is 
equally the means by which they are 
kept up. When there are any labour¬ 
ers unemployed, these, unless main¬ 
tained by charity, become competitors 
for hire, and wages fall; but when all 
who were out of work have found em¬ 
ployment, wages will not, under the 
freest system of competition, fall lower. 
There are strange notions afloat con¬ 
cerning the nature of competition. 
Some people seem to imagine that 
its effect is something indefinite; 
that the competition of sellers may 
lower prices, and the competition of la¬ 
bourers may lower wages, down to 
zero, or some unassignable minimum. 
Nothing can be more unfounded. 
Goods can only be lowered in price by 
competition, to the point which calls 
forth buyers sufficient to take them 
off; and wages can only be lowered 
by competition until room is made 
to admit all the labourer's to a share 
in the distribution of the wages- 
fund. If they fell below this point, a 
portion of capital would remain un¬ 
employed for want of labourers; a 
counter-competition would commence 
on the side of capitalists, and w r ages 
would rise. 

Since, therefore, the rate of wages 
which results from competition distri¬ 
butes the whole wages-fund among the 
whole labouring population; if law or 
opinion succeeds in fixing wages above 
this rate, some labourers are kept out 
of employment; and as it is not the 
intention of the philanthropists that 
these should starve, they must be pro¬ 
vided for by a forced increase of the 
wages-fund; by a compulsory saving. 
It is nothing to fix a minimum of 
wages, unless there be a provision that 
work, or wages at least, be found for 
all w T ho apply for it. This, accordingly, 
is always part of the scheme ; and is 
consistent with the ideas of more people 
than would approve of either a legal 
or a moral minimum of wages. Popular 
sentiment looks upon it as the duty of 
the rich, or of the state, to find employ¬ 
ment for all the poor. If the moral 


212 

influence of opinion does not induce 
the rich to spare from their consump¬ 
tion enough to set all the poor to work 
at “ reasonable wages,” it is supposed 
to be incumbent on the state to lay on 
taxes for the purpose, either by local 
rates or votes of public money. The 
proportion between labour and the 
wages-fund would thus be modified to 
the advantage of the labourers, not by 
restriction of population, but by an 
increase of capital. 

§ 2. If this claim on society could 
be limited to the existing generation ; 
if nothing more were necessary than a 
compulsory accumulation, sufficient to 
provide permanent employment at am¬ 
ple wages for the existing numbers of 
the people; such a proposition would 
have no more strenuous supporter than 
myself. Society mainly consists of 
those who live by bodily labour; and 
if society, that is, if the labourers, lend 
their physical force to protect indivi¬ 
duals in the enjoyment of superfluities, 
they are entitled to do so, and have 
always done so, with the reservation 
of a power to tax those superfluities 
for purposes. of public utility; among 
which purposes the subsistence of the 
people is the foremost. Since no one 
is responsible for having been born, 
no pecuniary sacrifice is too great to 
be made by those who have more than 
enough, for the purpose of securing 
enough to all persons already in ex¬ 
istence. 

But it is another thing altogether, 
wdien those who have produced and 
accumulated are called upon to abstain 
from consuming, until they have given 
food and clothing, not only to all who 
now exist, but to all whom these or 
their descendants may think fit to call 
into existence. Such an obligation ac¬ 
knowledged and acted upon, would sus¬ 
pend all checks, both positive and pre¬ 
ventive ; there would be nothing to 
hinder population from starting for¬ 
ward at its rapidest rate; and as the 
natural increase of capital would, at 
the best, not be more rapid than before, 
taxation, to make up the growing de¬ 
ficiency, must advance with the same 
gigantic strides. The attempt would 



220 BOOK II. CHAPTER XII. § 2. 


of coarse be made to exact labour in 
exchange for support. But experience 
has shown the sort of work to be ex¬ 
pected from recipients of public charity. 
When the pay is not given for the sake 
of the work, but the work found for the 
sake of the pay, inefficiency is a matter 
of certainty : to extract real work from 
day-labourers without the power of 
dismissal, is only practicable by the 
power of the lash. It is conceivable, 
doubtless, that this objection might 
be got over. The fund raised by tax¬ 
ation might be spread over the labour- 
market generally, as seems to be in¬ 
tended by the supporters of the “right 
to employment” in France; without giv¬ 
ing to any unemployed labourer a right 
to demand support in a particular place 
or from a particular functionary. The 
power of dismissal, as regards indi¬ 
vidual labourers, would then remain; 
the government only undertaking to 
create additional employment when 
there was a deficiency, and reserving, 
like other employers, the choice of its 
own workpeople. But let them work 
ever so efficiently, the increasing po¬ 
pulation could not, as we have so often 
shown, increase the produce propor¬ 
tionally : the surplus, after all were 
fed, would bear a less and less propor¬ 
tion to the whole produce and to the 
population : and the increase of people 
going on in a constant ratio, while the 
increase of produce went on in a di¬ 
minishing ratio, the surplus would in 
time be wholly absorbed; taxation for 
the support of the poor would engross 
the whole income of the country; the 
payers and the receivers would be 
melted down into one mass. The 
check to population either by death or 
prudence, could not then be staved off 
any longer, but must come into opera¬ 
tion suddenly and at once ; everything 
which places mankind above a nest of 
ants or a colony of beavers, having 
perished in the interval. 

These consequences have been so 
often and so clearly pointed out by au¬ 
thors of reputation, in writings known 
and accessible, that ignorance of them 
on the part of educated persons is no 
longer pardonable. It is doubly dis¬ 
creditable in any person setting up for 


a public teacher, to ignore these con¬ 
siderations ; to dismiss them silently, 
and discuss or declaim on wages and 
poor-laws, not as if these arguments 
could be refuted, but as if they did not 
exist. 

Every one has a right to live. We 
will suppose this granted. But no one 
has a right to bring creatures into life, 
to be supported by other people. Who¬ 
ever means to stand upon the first of 
these rights must renounce all preten¬ 
sion to the last. If a man cannot sup¬ 
port even himself unless others help 
him, those others are entitled to say 
that they do not also undertake the 
support of any offspring which it is 
physically possible for him to summon 
into the world. Yet there are abun¬ 
dance of writers and public speakers, 
including many of most ostentatious 
pretensions to high feeling, whose views 
of life are so truly brutish, that they 
see hardship in preventing paupers 
from breeding hereditary paupers in 
the workhouse itself. Posterity will 
one day ask with astonishment, what 
sort of people it could be among whom 
such preachers could find proselytes. 

It would be possible for the state to 
guarantee employment at ample wages 
to all who are born. But if it does 
this, it is bound in self-protection, and 
for the sake of every purpose for which 
government exists, to provide that no 
person shall be born without its consent. 
If the ordinary and spontaneous mo¬ 
tives to self-restraint are removed, 
others must be substituted. Restric¬ 
tions on marriage, at least equivalent 
to those existing in some of the German 
States, or severe penalties on those 
who have children when unable to sup¬ 
port them, would then be indispensable. 
Society can feed the necessitous, if it 
takes their multiplication under its 
control; or (if destitute of all moral 
feeling for the wretched offspring) it 
can leave the last to their discretion, 
abandoning the first to their own care. 
But it cannot with impunity take the 
feeding upon itself, and leave the mul¬ 
tiplying free. 

To give profusely to the people, whe¬ 
ther under the name of charity or of 
employment, without placing them 



221 


POPULAR REMEDIES FOR LOW WAGES. 


under such influences that prudential 
motives shall act powerfully upon them, 
is to lavish the means of benefiting 
mankind, without attaining the object. 
Leave the people in a situation in 
which their condition manifestly de¬ 
pends upon their numbers, and the 
greatest permanent benefit ma}’ be 
derived from any sacrifice made to im¬ 
prove the physical well-being of the 
pi*esent generation, and raise, by that 
means, the habits of their children. 
Bat remove the regulation of their 
wages from their own control; gua¬ 
rantee to them a certain payment, 
either by law, or by the feeling of the 
community; and no amount of comfort 
that you can give them will make 
either them or their descendants look 
to their own self-restraint as the proper 
means for preserving them in that 
state. You will only make them in¬ 
dignantly claim the continuance of your 
guarantee, to themselves and their full 
complement of possible posterity. 

On these grounds some writers have 
altogether condemned the English 
poor-law, and any system of relief to 
the able-bodied, at least when uncom¬ 
bined with systematic legal precautions 
against over-population. The famous 
Act of the 43d of Elizabeth undertook, 
on the part of the public, to provide 
work and wages for all the destitute 
able-bodied: and there is little doubt 
that if the intent of that Act had been 
fully carried out, and no means had 
been adopted by the administrators of 
relief to neutralize its natural tenden¬ 
cies, the poor-rate would by this time 
have absorbed the whole net produce 
of the land and labour of the country. 
It is not at all surprising, therefore, 
that Mr. Malthus and others should at 
first have concluded against all poor- 
laws whatever. It required much ex¬ 
perience, and careful examination of 
different modes of poor-law manage¬ 
ment, to give assurance that the ad¬ 
mission of an absolute right to be sup¬ 
ported at the cost of other people, could 
exist in law and in fact, without fatally 
relaxing the springs of industry and 
the restraints of prudence. This, how¬ 
ever, was fully substantiated, by the 
investigations of the original Poor Law 


Commissioners. Hostile as they are 
unjustly accused of being to the 
principle of legal relief, they are the 
first who fully proved the compatibility 
of any Poor Law in which a right to 
relief was recognised, with the perma¬ 
nent interests of the labouring class 
and of posterity. By a collection of 
facts, experimentally ascertained in 
parishes scattered throughout England, 
it was shown that the guarantee of 
support could be freed from its injurious 
effects upon the minds and habits of 
the people, if the relief, though ample 
in respect to necessaries, was accom¬ 
panied with conditions which they dis¬ 
liked, consisting of some restraints on 
their freedom, and the privation of some 
indulgences. Under this proviso, it 
may be regarded as irrevocably esta¬ 
blished, that the fate of no member of 
the community needs be abandoned to 
chance ; that society can, and therefore 
ought to ensure every individual be¬ 
longing to it against the extreme of 
want; that the condition even of those 
who are unable to find their own sup¬ 
port, needs not be one of physical suf¬ 
fering, or the dread of it, but only of 
restricted indulgence, and enforced 
rigidity of discipline. This is surely 
something gained for humanity, impor¬ 
tant in itself, and still more so as a 
step to something beyond; and hu¬ 
manity has no worse enemies than 
those who lend themselves, either 
knowingly or unintentionally, to bring 
odium on this law, or on the principles 
in which it originated. 

§ 3. Next to the attempts to regu¬ 
late wages, and provide artificially 
that all who are willing to work shall 
receive an adequate price for their 
labour, we have to consider another 
class of popular remedies, which do 
not profess to interfere with freedom of 
contract; which leave wages to be 
fixed by the competition of the market, 
but, when they are considered insuffi¬ 
cient, endeavour by some subsidiary 
resource to make up to the labourers 
for the insufficiency. Of this nature 
was the expedient resorted to by 
parish authorities during thirty or 
forty years previous to 1834, generally 



BOOK II. CHAPTER XII. § 3. 


222 

known as tlie Allowance System. This 
was first introduced, when, through a 
succession of had seasons, and conse¬ 
quent high prices of food, the wages of 
labour had become inadequate to afford 
to the families of the agricultural 
labourers the amount of support to 
which they had been accustomed. 
Sentiments of humanity, joined with 
the idea then inculcated in high 
quarters, that people ought not to be 
allowed to suffer for having enriched 
their country with'a multitude of inha¬ 
bitants, induced the magistrates of the 
rural districts to commence giving 
parish relief to persons already in 
private employment; and when the 
practice had once been sanctioned, the 
immediate interest of the farmers, 
whom it enabled to throw part of the 
support of their labourers upon the 
other inhabitants of the parish, led to a 
great and rapid extension of it. The 
principle of this scheme being avowedly 
that of adapting the means of every 
family to its necessities, it was a natu¬ 
ral consequence that more should be 
given to the married than to the single, 
and to those who had large families 
than to those who had not: in fact, 
an allowance was usually granted for 
every child. So direct and positive an 
encouragement to population is not, 
however, inseparable from the scheme : 
the allowance in aid of wages might 
be a fixed thing, given to all labourers 
alike, and as this is the least objec¬ 
tionable form which the system can 
assume, we will give it the benefit of 
the supposition. 

It is obvious that this is merely 
another mode of fixing a minimum of 
wages; no otherwise differing from 
the direct mode, than in allowing the 
employer to buy the labour at its 
market price, the difference being 
made up to the labourer from a public 
fund. The one kind of guarantee is 
open to all the objections which have 
been urged against the other. It pro¬ 
mises to the labourers that they shall 
all have a certain amount of wages, 
however numerous they may be : and 
removes, therefore, alike the positive 
and the prudential obstacles to an un¬ 
limited increase. But besides the 


objections common to all attempts to 
regulate wages without regulating 
population, the allowance system has 
a peculiar absurdity of its own. This 
is, that it inevitably takes from wages 
with one hand what it adds to them 
with the other. There is a rate of 
wages, either the lowest on which the 
people can, or the lowest on which they 
will consent, to live. We will suppose 
this to be seven shillings a-week. 
Shocked at the wretchedness of this 
pittance, the parish authorities hu¬ 
manely make it up to ten. But the 
labourers are accustomed to seven, and 
though they would gladly have more, 
will live on that (as the fact proves) 
rather than restrain the instinct of 
multiplication. Their habits will not 
be altered for the better by giving 
them parish pay. Receiving three 
shillings from the parish, they will be 
as well off as before though they 
should increase sufficiently to bring 
down wages to four shillings. They 
will accordingly people down to that 
point; or perhaps, without waiting for 
an increase of numbers, there are un¬ 
employed labourers enough in the 
workhouse to produce the effect at 
once. It is well known that the allow¬ 
ance system did practically operate in 
the mode described, and that under 
its influence wages sank to a lower 
rate than had been known in England 
before. During the last century, under 
a rather rigid administration of the 
poor-laws, population increased slowly, 
and agricultural wages were conside¬ 
rably above the starvation point. 
Under the allowance system the 
people increased so fast, and wages 
sank so low, that with wages and 
allowance together, families were 
worse off than they had been before 
with wages alone. When the labourer 
depends solely on wages, there is a 
virtual minimum. If wages fall below 
the lowest rate which will enable the 
population to be kept up, depopulation 
at least restores them to that lowest 
rate. But if the deficiency is to be 
made up by a forced contribution from 
all who have anything to give, wages 
may fall below starvation point; they 
may fall almost to zero. This deplor- 



POPULAR REMEDIES FOR LOW WAGES. 


able system, worse than any other 
form of poor-law abuse yet invented, 
inasmuch as it pauperizes not merely 
the unemployed part of the population 
but the whole, has been abolished, and 
of this one abuse at least it may be 
said that nobody professes to wish for 
its revival. 

§ 4. But while this is (it is to be 
hoped) exploded, there is another mode 
of relief in aid of wages, which is still 
highly popular; a mode greatly pre¬ 
ferable, morally and socially, to parish 
allowance, but tending, it is to be 
feared, to a very similar economical 
result: I mean the much - boasted 
Allotment System. This, too, is a con¬ 
trivance to compensate the labourer 
toi the insufficiency of his wages, by 
giving him something else as a supple¬ 
ment to them : but instead of having 
them made up from the poor-rate, he is 
enabled to make them up for himself, 
by renting a small piece of ground, 
which he cultivates like a garden by 
spade labour, raising potatoes and 
other vegetables for home consump¬ 
tion, with perhaps some additional 
quantity for sale. If he hires the 
ground ready manured, he sometimes 
payg for it at as high a rate as eight 
pounds an acre : but getting his own 
labour and that of his family for no¬ 
thing, he is able to gain several pounds 
by it even at so high a rent.* The 
patrons of the system make it a great 
point that the allotment shall be in aid 
of wages, and not a substitute for 
them; that it shall not be such as a 
labourer can live on, but only sufficient 
to occupy the spare hours and days of 
a man in tolerably regular agricultural 
employment, with assistance from his 
wife and children. They usually limit 
the extent of a single allotment to a 
quarter, or something between a quar¬ 
ter and half an acre. If it exceeds 
this, without being enough to occupy 
him entirely, it will make him, they 
say, a bad and uncertain workman for 
hire: if it is sufficient to take him 
entirely out of the class of hired 

* See the Evidence on the subject of 
Allotments, collected by the Commissioners 
of Poor Law Enquiry. 


223 

labourers, and to become his sole 
means of subsistence, it will make him 
an Irish cottier: for which assertion, 
at the enormous rents usually de¬ 
manded, there is some foundation. 
But in their precautions against cot- 
tierism, these well-meaning persons do 
not perceive, that if the system they 
patronize is not a cottier system, it is, 
in essentials, neither more nor less 
than a system of conacre. 

There is no doubt a material diffe¬ 
rence between eking out insufficient 
wages by a fund raised by taxation, 
and doing the same thing by means 
which make a clear addition to the 
gross produce of the country. There 
is also a difference between helping a 
labourer by means of his own industry, 
and subsidizing him in a mode which 
tends to make him careless and idle. 
On both these points, allotments have 
an unquestionable advantage over 
parish allowances. But in their effect 
on wages and population, I see no 
reason why the two plans should sub¬ 
stantially differ. All subsidies in aid 
of wages enable the labourer to do 
with less remuneration, and therefore 
ultimately bring down the price of 
labour by the full amount, unless a 
change be wrought in the ideas and 
requirements of the labouring class; 
an alteration in the relative value 
which they set upon the gratification 
of their instincts, and upon the increase 
ot their comforts and the comforts of 
those connected with them. That any 
such change in their character should 
be produced by the allotment system, 
appears to me a thing not to -be 
expected. The possession of land, we 
are sometimes told, renders the la¬ 
bourer provident. Property in land 
does so; or what is equivalent to pro¬ 
perty, occupation on fixed terms and 
on a permanent tenure. But mere 
hiring from year to year was never 
found to have any such effect. Did 
possession of land render the Irishman 
provident? Testimonies, it is true, 
abound, and I do not seek to discredit 
them, of the beneficial change pro¬ 
duced in the conduct and condition of 
labourers, by receiving allotments. 
Such an effect is to bo expected while 





BOOK II. CHAPTER XII. § 4. 


224 

those who hold them are a small num¬ 
ber ; a privileged class, having a status 
above the common level, which they 
are unwilling to lose. They are also, 
no doubt, almost always, originally a 
select class, composed of the most 
favourable specimens of the labouring 
people : which, however, is attended 
with the inconvenience, that the per¬ 
sons to whom the system facilitates 
marrying and having children, are pre¬ 
cisely those who would otherwise be 
the most likely to practise prudential 
restraint. As affecting the general 
condition of the labouring class, the 
scheme, as it seems to me, must be 
either nugatory or mischievous. If only 
a few labourers have allotments, they 
are naturally those who could do best 
without them, an-d no good is done to 
the class: while, if the system were 
general, and every or almost every 
labourer had an allotment, I believe the 
effect would be much the same as when 
every or almost every labourer had an 
allowance in aid of wages. I think 
there can be no doubt that if, at the 
end of the last century, the Allotment 
instead of the Allowance system had 
been generally adopted in England, it 
would equally have broken down the 
practical restraints on population which 
at that time did really exist; popula¬ 
tion would have started forward ex¬ 
actly as in fact it did ; and in twenty 
years, wages plus the allotment would 
have been, as wages plus the allow¬ 
ance actually were, no more than equal 
to the former wages without any allot¬ 
ment. The only difference in favour 
of allotments would have been, that 
they make the people grow their own 
poor-rates. 

I am at the same time quite ready 
to allow, that in some circumstances, 
the possession of land at a fair rent, 
even without ownership, by the gene¬ 
rality of labourers.for hire, operates as 
a cause not of low, but of high wages. 
This, however, is when their land ren¬ 
ders them, to the extent of actual 
necessaries, independent of the market 
for labour. There is the greatest diffe¬ 
rence between the position of people 
who live by wages, with land as an 
extra resource, and of people who can, 


in case of necessity, subsist entirely 
on their land, and only work for hire 
to add to their comforts. Wages are 
likely to be high where none are com¬ 
pelled by necessity to sell their labour. 
“ People who have at home some kind 
of property to apply their labour to, 
will not sell their labour for wages 
that do not afford them a better diet 
than potatoes and maize, although in 
saving for themselves, they may live 
very much on potatoes and maize. We 
are often surprised in travelling on 
the Continent, to hear of a rate of 
day’s wages very high, considering the 
abundance and cheapness of food. It 
is want of the necessity or inclina¬ 
tion to take work, that makes day- 
labour scarce, and, considering the 
price of provisions, dear, in many parts 
of the Continent, where property in 
land is widely diffused among the 
people.There are parts of the Con¬ 
tinent where, even of the inhabitants 
of the towns, scarcely one seems to be 
exclusively dependent on his ostensible 
employment; and nothing else can ex¬ 
plain the high price they put on their 
services, and the carelessness they 
evince as to whether they are em¬ 
ployed at all. But the effect would be 
far different if their land or other 
resources gave them only a fraction of 
a subsistence, leaving them under an 
undiminished necessity of selling their 
labour for wages in an overstocked 
market. Their land would then merely 
enable them to exist on smaller wages, 
and to carry their multiplication so 
much the further before reaching the 
point below which they either couid 
not, or would not, descend. 

To the view I have taken of the 
effect of allotments, I see no argument 
which can be opposed, but that em¬ 
ployed by Mr. Thornton,f with whom 
on this subject I am at issue. His 
defence of allotments is grounded on 
the general doctrine, that it is only the 
very poor who multiply without regard 
to consequences, and that if the con¬ 
dition of the existing generation could 
be greatly improved, which he thinks 

* Lainar’s Notes of a Traveller, p. 456. 

t See Thornton on Over-Population, ch- 

viii. 




REMEDIES FOR LOW WAGES. 225 


might be clone by the allotment system, 
their successors would grow up with 
an increased standard of requirements, 
and would not have families until they 
could keep them in as much comfort as 
that in which they had been brought 
up themselves. I agree in as much of 
this argument as goes to prove that a 
sudden and very great improvement in 
the condition of the poor, lias always, 
through its effect on their habits of 
life, a chance of becoming permanent. 
What happened at the time of the 
French Revolution is an example. But 
I cannot think that the addition of a 
quarter or even half an acre to every 
labourer’s cottage, and that too at a 
rack rent, would (after the fall of wages 
which would bo necessary to absorb 
the already existing mass of pauper 
labour) make so great a difference in 
the comforts of the family for a gene¬ 
ration to come, as to raise up from 
childhood a labouring population with 
a really higher permanent standard of 
requirements and habits. So small a 
portion of land could only be made a 
permanent benefit, by holding out en¬ 
couragement to acquire by industry 
and saving, the means of buying it out¬ 
right : a permission which, if exten¬ 
sively made use of, would be a kind of 


education in forethought and frugality 
to the entire class, the effects of which 
might not cease with the occasion. 
The benefit would however arise, not 
from what was given them, but from 
what they were stimulated to acquire. 

No remedies for low wages have the 
smallest chance of being efficacious, 
which do not operate on and through 
the minds and habits of*the people. 
While these are unaffected, any con¬ 
trivance, even if successful, for tempo¬ 
rarily improving the condition of the 
very poor, would but let slip the reins 
by which population was previously 
curbed; and could only, therefore, con¬ 
tinue to produce its effect, if, by the 
whip and spur of taxation, capital 
were compelled to follow at an equally 
accelerated pace. But this process 
could not possibly continue for long 
together, and whenever it stopped, it 
would leave the country with an in¬ 
creased number of the poorest class, 
and a diminished proportion of all ex¬ 
cept the poorest, or, if it continued 
long enough, with none at all. For 
“to this complexion must come at 
last” all social arrangements, which 
remove the natural checks to popula¬ 
tion without substituting any others. 


CHARTER XIII. 



THE REMEDIES FOR LOW WAGES FURTHER CONSIDERED. 


§ 1. By what means, then, is po¬ 
verty to be contended against? How 
is the evil of low wages to be reme¬ 
died ? If the expedients usually 
recommended for the purpose are not 
adapted to it, can no others be thought 
of ? Is the problem incapable of solu¬ 
tion? Can political economy do 
nothing, but only object to everything, 
and demonstrate that nothing can be 
done ? 

If this were so, political economy 
might have a needful, but would have 
a melancholy, and a thankless task. 
If the bulk of the human race are 

f.E. 


always to remain as at present, slaves 
to toil in which they have no interest, 
and therefore feel no interest—drudg¬ 
ing from early morning till late at 
night for bare necessaries, and with all 
the intellectual and moral deficiencies 
which that implies—without resources 
either in mind or feelings—untaught, 
for they cannot be better taught than 
fed ; selfish, for all their thoughts are 
required for themselves ; without inte¬ 
rests or sentiments as citizens and 
members of society, and with a sense 
of injustice rankling in their minds, 
equally for what they have not, and 

4 





226 BOOK IT. CHAPTER XIII. § 1. 


for what others have ; I know not 
what there is which should make a 
person with any capacity of reason, 
concern himself about the destinies of 
the human race. There would he no 
wisdom for any one but in extracting 
from life, with Epicurean indifference, 
as much personal satisfaction to him¬ 
self and those with whom he sympa¬ 
thizes, as it can yield without injury 
to any one, and letting the unmeaning 
bustle of so-called civilized existence 
roll bv unheeded. But there is no 
ground for such a view of human 
affairs. Poverty, like most social evils, 
exists because men follow their brute 
instincts without due consideration. 
But society is possible, precisely be¬ 
cause man is not necessarily a brute. 
Civilization in every one of its aspects 
is a struggle against the animal in¬ 
stincts. Over some even of the strongest 
of them, it has shown itself capable of 
acquiring abundant control. It has 
artificialized large portions of mankind 
to such an extent, that of many of 
their most natural inclinations they 
have scarcely a vestige or a remem¬ 
brance left. If it has not brought the 
instinct of population under as much 
restraint as is needful, we must 
remember that it has never seriously 
tried. What efforts it has made, have 
mostly been in the contrary direction. 
Religion, morality, and statesmanship 
have vied with one another in incite¬ 
ments to marriage, and to the multi¬ 
plication of the species, so it be but in 
wedlock. Religion has not even yet 
discontinued its encouragements. The 
Roman Catholic clergy (of any other 
clergy it is unnecessary to speak, since 
no other have any considerable influ¬ 
ence over the poorer classes) every¬ 
where think it their duty to promote 
marriage, in order to prevent fornica¬ 
tion. There is still in many minds a 
strong religious prejudice against the 
true doctrine. The rich, provided the 
consequences do not touch themselves, 
think it impugns the wisdom of Provi¬ 
dence to suppose that misery can result 
from the operation of a natural pro¬ 
pensity : the poor think that “ God 
never sends mouths but he sends meat.” 
JSo one would guess from the language 


of either, that man had any voice or 
choice in the matter. So complete is 
the confusion of ideas on the whole 
subject: ow T ing in a great degree to 
the mystery in which it is shrouded by 
a spurious "delicacy, which prefers that 
right and wrong should be mismea- 
sured and confounded on one of the 
subjects most momentous to human 
welfare, rather than that the subject 
should be freely spoken of and dis¬ 
cussed. People are little aware of the 
cost to mankind of this scrupulosity of 
speech. The diseases of society can, 
no more than corporal maladies, be 
prevented or cured without being 
spoken about in plain language. All 
experience shows that the mass of 
mankind never judge of moral ques¬ 
tions for themselves, never see any¬ 
thing to be right or wrong until they 
have been frequently told it; and who 
tells them that they have any dhties 
in the matter in question, while they 
keep within matrimonial limits ? Who 
meets with the smallest condemnation, 
or rather, who does not meet with sym¬ 
pathy and benevolence, for any amount 
of evil which he may have brought 
upon himself and those dependent on 
him, by this species of incontinence ? 
While a man who is intemperate in 
drink, is discountenanced and despised 
by all who profess to be moral people, 
it is one of the chief grounds made 
use of in appeals to the benevolent, 
that the applicant has a large family 
and is unable to maintain them.* 

One cannot wonder that silence on 
this great department of human duty 
should produce unconsciousness of moral 
obligations, when it produces oblivion 
of physical facts. That it is possible 
to delay marriage, and to live in ab¬ 
stinence while unmarried, most people 
are willing to allow : but when persons 
are once married, the idea, in this 
country, never seems to enter any one’s 
mind that having or not having a 
family, or the number of which it shall 

* Little improvement can be expected in 
morality until the producing large families 
is regarded with the same feelings as drunken¬ 
ness or any other physical excess. But while 
the aristocracy and clergy are foremost to set 
the example of this kind of incontinence, 
what can be expected from the poor ? 




REMEDIES FOR LOW WAGES. 


consist, is .amenable to their own control. 
One would imagine that children were 
rained down upon married people, 
direct from heaven, without their being 
art or part in the matter; that it was 
really, as the common phrases have it, 
God’s will, and not their own, which 
decided the numbers of their offspring. 
Let us see what is a Continental philo¬ 
sopher’s opinion on this point; a man 
among the most benevolent of his time, 
and the happiness of whose married 
life has been celebrated. 

“ When dangerous prejudices,” says 
Fismondi,* “ have not become accre¬ 
dited, when a morality contrary to our 
true duties towards others,and especially 
towards those to whom we have given 
life, is not inculcated in the name of 
the most sacred authority ; no prudent 
man contracts matrimony before he is 
in a condition which gives him an 
assured means of living, and no married 
man has a greater number of children 
than he can properly bring up. The 
head of a family thinks, with reason, 
that his children may be contented 
wdth the condition in which he himself 
has lived ; and his desire will be that 
the rising generation should represent 
exactly the departing one: that one 
son and one daughter arrived at the 
marriageable age should replace his 
own father and mother; that the 
children of his children should in their 
turn replace himself and his wife; that 
his daughter should find in another 
family the precise equivalent of the lot 
which will be given in his own family 
to the daughter of another, and that 
the income which sufficed for the 
parents will suffice for the children.” 
In a country increasing in wealth, 
some increase of numbers would be 
admissible, but that is a question of 
detail, not of principle. “ Whenever 
this family has been formed, justice and 
humanity require that he should im¬ 
pose on himself the same restraint 
which is submitted to by the unmarried. 
When we consider how small, in every 
country, is the number of natural 
children, we must admit that this re¬ 
straint is on the whole sufficiently effec- 

* New Principles qf Political Economy, 
book vii., ch. 5, 


227 

tual. In a country where population 
has no room to increase, or in which 
its progress must be so slow as to be 
hardly perceptible, wheii there are no 
places vacant for new establishments, 
a father who has eight children must 
expect, either that six of them will die 
in childhood, or that three men and 
three women among his cotemporaries,' 
and in the next generation three of 
his sons and three of his daughters^ 
will remain unmarried on his account.” 

§ 2. Those who think it hopeless 
that the labouring classes should be 
induced to practise a sufficient degree 
of prudence in regard to the increase 
of their families, because they have 
hitherto stopt. short of that point, show 
an inability to estimate the ordinary 
principles of human action. Nothing 
more would probably be necessary to 
secure that result, than an opinion 
generally diffused that it was desir¬ 
able. As a moral principle, such an 
opinion has never yet existed in any 
country : it is curious that it does not 
so exist in countries in which, from the 
spontaneous operation of individual 
forethought, population is, compara¬ 
tively speaking, efficiently repressed. 
What is practised as prudence, is still 
not recognised as duty; the talkers 
and writers are mostly on the other 
side, even in France, where a senti¬ 
mental horror of Malthus is almost as 
rife as in this country. Many causes 
may be assigned, besides the modern 
date of the doctrine, for its not having 
yet gained possession of the general 
mind. Its truth has, in some respects, 
been its detriment. One may be per¬ 
mitted to doubt whether, except among 
the poor themselves (for whose pre¬ 
judices on this subject there is no diffi¬ 
culty in accounting) there has ever 
yet been, in any class of society, a 
sincere and earnest desire that wages 
should be high. There has been plenty 
of desire to keep down the poor-rate : 
but, that done, people have been very 
willing that the working classes should 
be ill off. Nearly all who are not 
labourers themselves, are employers 
of labour, and are not sorry to get the 
commodity cheap. It is a fact, that 



228 BOOK II. CHAPTER XIII. § 2. 


even Boards of Guardians, who are sup¬ 
posed to be official apostles of anti- 
population doctrines, will seldom hear 
patiently of anything which they are 
pleased to designate as Malthusianism. 
Boards of Guardians in rural districts, 
principally consist of farmers, and 
farmers, it is well known, in general 
dislike even allotments, as making 
the labourers “ too independent.” From 
the gentry, who are in less immediate 
contact and collision of interest with 
the labourers, better things might be 
expected, and the gentry of England 
are usually charitable. But charitable 
people have human infirmities, and 
would, very often, be secretly not a 
little dissatisfied if no one needed their 
charity: it is from them one oftenest 
hears the base doctrine, that God has 
decreed there shall always be poor. 
When one adds to this, that nearly 
every person who has had in him any 
active spring of exertion for a social 
object, has had some favourite reform 
to effect, which he thought the admis¬ 
sion of this great principle would throw 
into the shade; has had corn laws to 
repeal, or taxation to reduce, or small 
notes to issue, or the charter to carry, 
or the church to revive or abolish, or 
the aristocracy to pull down, and looked 
upon every one as an enemy who 
thought anything important except 
his object; it is scarcely wonderful 
that since the population doctrine was 
first promulgated, nine-tenths of the 
talk has always been against it, and 
the remaining tenth only audible at 
intervals; and that it has not yet 
penetrated far among those who might 
be expected to be the least willing re¬ 
cipients of it, the labourers themselves. 

But let us try to imagine what 
would happen if the idea became 
general among the labouring class, 
that the competition of too great 
numbers was the principal cause of 
their poverty; so that every labourer 
looked (with Sismondi) upon every 
other who had more than the number 
of children which the circumstances of 
society allowed to each, as doing him 
a wrong—as filling up the place which 
he was entitled to share. Any one 
who supposes that this state of opinion 


would not have a great effect on con¬ 
duct, must be profoundly ignorant of 
human nature; can never have con¬ 
sidered how large a portion of the 
motives which induce the generality 
of men to take care even of their own 
interests, is derived from regard for 
opinion—from the expectation of being 
disliked or despised for not doing it. 
In the particular case in question, it is 
not too much to say that over-indul¬ 
gence is as much caused by the sti¬ 
mulus of opinion as by the mere animal 
propensity; since opinion universally, 
and especially among the most un¬ 
educated classes, has connected ideas 
of spirit and power with the strength 
of the instinct, and of inferiority with 
its moderation or absence ; a perver¬ 
sion of sentiment caused by its being 
the means, and the stamp, of a do¬ 
minion exercised over other human 
beings. The effect would be great 
of merely removing this factitious 
stimulus ; and when once opinion shall 
have turned itself into an adverse 
direction, a revolution will soon take 
place in this department of human 
conduct. AVe are often told that the 
most thorough perception of the depen¬ 
dence of wages on population will not 
influence the conduct of a labouring 
man, because it is not the children he 
himself can have that will produce any 
effect in generally depressing the 
labour market. True : and it is also 
true, that one soldier’s running away 
will not lose the battle ; accordingly it 
is not that consideration which keeps 
each soldier in his rank : it is the dis¬ 
grace which naturally and inevitably 
attends on conduct by any one indi¬ 
vidual, which if pursued by a majority, 
everybody can see would be fatal. 
Men are seldom found to brave the 
general opinion of their class, unless 
supported either by some principle 
higher than regard for opinion, or by 
some strong body of opinion elsewhere. 

It must be borne in mind also, that 
the opinion here in question, as soon as 
it attained any prevalence, would have 
powerful auxiliaries in the great ma¬ 
jority of women. It is seldom by the 
choice of the wife that families are too 
numerous; on her devolves (along 




REMEDIES FOR LOW WAGES. 


with all the physical suffering and at 
least a full share of the privations) the 
whole of the intolerable domestic drud¬ 
gery resulting from the excess. To be 
relieved from it would be hailed as a 
blessing by multitudes of women who 
now never venture to urge such a 
claim, but who would urge it, if sup¬ 
ported by the moral feelings of the 
community. Among the barbarisms 
which la-w and morals have not yet 
ceased to sanction, the most disgusting 
surely is, that any human being should 
be permitted to consider himself as 
having a right to the person of another. 

If the opinion were once generally 
established among the labouring class 
that their welfare required a due regu¬ 
lation of the numbers of families, the 
respectable and well-conducted of the 
body would conform to the prescrip¬ 
tion, and only those would exempt 
themselves from it, who were in the 
habit of making light of social obliga¬ 
tions generally; and there would be 
then an evident justification for con¬ 
verting the moral obligation against 
bringing children into the world who 
are a burthen to the community, into 
a legal one; just as in many other 
cases of the progress of opinion, the 
law ends by enforcing against recal¬ 
citrant minorities, obligations which to 
be useful must be general, and which, 
from a sense of their utility, a large 
majority have voluntarily consented 
to take upon themselves. There would 
be no need, however, of legal sanctions, 
if women were admitted, as on all 
other grounds they have the clearest 
title to be, to the same rights of 
citizenship with men. Let them cease 
to be confined by custom to one phy¬ 
sical function as their means of living 
and their source of influence, and they 
would have for the first time an equal 
voice with men in what concerns that 
function : and of all the improvements 
in reserve for mankind which it is now 
possible to foresee, none might be 
expected to be so fertile as this in 
almost every kind of moral and social 
benefit. 

It remains to consider what chance 
there is that opinions and feelings, 
grounded on the law of the dependence 


229 

of wages on population, will arise 
among the labouring classes ; and by 
what means such opinions and feelings 
can be called forth. Before consider¬ 
ing the grounds of hope on this subject, 
a hope which many persons, no doubt, 
will be ready, without consideration, to 
pionounce chimerical, I will remark, 
that unless a satisfactory answer can 
be made to these two questions, the 
industrial system prevailing in this 
country, and regarded by many writers 
as the ne plus ultra of civilization— 
the dependence of the whole labouring 
class of the community on the wages 
of hired labour—is irrevocably con¬ 
demned. The question we are con¬ 
sidering is, whether, of this state of 
things, over population and a degraded 
condition of the labouring class are 
the inevitable consequence. If a 
prudent regulation of population bo 
not reconcilable with the system of 
hired labour, the system is a nuisance, 
and the grand object of economical 
statesmanship should be (by whatever 
arrangements of property, and altera¬ 
tions in the modes of applyingindustry), 
to bring the labouring people under the 
influence of stronger and more obvious 
inducements to this kind of prudence, 
than the relation of workmen and 
employers can afford. 

But there exists no such incom¬ 
patibility. The causes of poverty are 
not so obvious at first sight to a popu¬ 
lation of hired labourers, as they are 
to one of proprietors, or as they would 
be to a socialist community. They 
are, however, in no way mysterious. 
The dependence of wages on the num¬ 
ber of the competitors for employment, 
is so far from hard of comprehension, or 
unintelligible to the labouring classes, 
that by great bodies of them it is 
already recognised and habitually acted 
on. It is familiar to all Trades Unions; 
every successful combination to keep 
up wages, owes its success to contri¬ 
vances for restricting the number of 
the competitors ; all skilled trades are 
anxious to keep down their own num¬ 
bers, and many impose, or endeavour 
to impose, as a condition upon em¬ 
ployers, that they shall not take more 
than a prescribed number of appren- 




230 BOOK II. CHAPTER XIII. § 3. 


tiees. There is, of course, a great 
difference between limiting their num¬ 
bers by excluding other people, and 
doing the same thing by a restraint 
imposed on themselves: hut the one 
as much as the other shows a clear 
perception of the relation between 
their numbers and their remuneration. 
The principle is understood in its ap¬ 
plication to any one employment, but 
not to the general mass of employment. 
For this there are several reasons: 
first, the operation of causes is more 
easily and distinctly seen in the more 
circumscribed field: secondly, skilled 
artizans are a more intellirent class 

o 

than ordinary manual labourers ; and 
the habit of concert, and of passing in 
review their general condition as a 
trade, keeps up a better understanding 
of their collective interests : thirdly and 
lastly, they are the most provident, 
because they are the best off, and have 
the most to preserve. What, how¬ 
ever, is clearly perceived and admitted 
in particular instances, it cannot be 
hopeless to see understood and acknow¬ 
ledged as a general truth. Its recog¬ 
nition, at least in theory, seems a 
thing which must necessarily and 
immediately come to pass, when the 
minds of the labouring classes become 
capable of taking any rational view of 
their own aggregate condition. Of 
this the great majority of them have 
until now been incapable, either from 
the uncultivated state of their intelli¬ 
gence, or from poverty, which leaving 
them neither the fear of worse, nor the 
smallest hope of better, makes them 
careless of the consequences of their 
actions, and without thought for the 
future. 

§ 3. For the purpose therefore of 
altering the habits of the labouring 
people, there is need of a twofold action, 
directed simultaneously upon their in¬ 
telligence and their poverty. An effec¬ 
tive national education of the children 
of the labouring class, is the first thing 
needful: and, coincidently with this, 
a system of measures which shall (as 
the Revolution did in France) ex¬ 
tinguish extreme poverty for one whole 
generation. 


This is not the place for discussing, 
even in the most general manner, 
either the principles or the machinery 
of national education. But it is to be 
hoped that opinion on the subject is 
advancing, and that an education of 
mere words would not now be deemed 
sufficient, slow as our progress is to¬ 
wards providing anything better even 
for the classes to whom society pro¬ 
fesses to give the very best education 
it can devise. Without entering into 
disputable points, it may be asserted 
without scruple, that the aim of all in¬ 
tellectual training for the mass of the 
people, should be to cultivate common 
sense; to qualify them for forming a 
sound practical judgment of the cir¬ 
cumstances by which they are sur¬ 
rounded. Whatever, in the intellectual 
department, can be superadded to 
this, is chiefly ornamental; while this 
is the indispensable groundwork on 
which education must rest. Let this 
object be acknowledged and kept in 
view as the thing to be first aimed at, 
and there will be little difficulty in de¬ 
ciding either what to teach, or in what 
manner to teach it. 

An education directed to diffuse good 
sense among the people, with such 
knowledge as would qualify them to 
judge of the tendencies of their actions, 
would be certain, even without any 
direct inculcation, to raise up a public 
opinion by which intemperance and 
improvidence of every kind would be 
held discreditable, and the improvi¬ 
dence which overstocks the labour 
market would be severely condemned, 
as an offence against the common 
weal. But though the sufficiency of 
such a state of opinion, supposing it 
formed, to keep the increase of popu¬ 
lation within proper limits, cannot, I 
think, be doubted ; yet, for the forma¬ 
tion of the opinion, it would not do to 
trust to education alone. Education 
is not compatible with extreme poverty. 
It is impossible effectually to teach an 
indigent population. And it is diffi¬ 
cult to make those feel the value of 
comfort who have never enjoyed it, or 
those appreciate the wretchedness of 
a precarious subsistence, who have 
been made reckless by always living 




REMEDIES FOR LOW WAGES. 


from hand to month. Individuals often 
struggle upwards into a condition of 
ease ; hut the utmost that can he ex¬ 
pected from a whole people is to main¬ 
tain themselves in it; and improvement 
in the hahits and requirements of the 
mass of unskilled day-labourers will 
he difficult and tardy, unless means 
can he contrived of raising the entire 
body to a state of tolerable comfort, and 
maintaining them in it until a new 
generation grows up. 

Towards effecting this object there 
are two resources available, without 
wrong to any one, without any of the 
liabilities of mischief attendant on 
voluntary or legal charity, and not 
only without weakening, but on the 
contrary strengthening, every incen¬ 
tive to industry, and every motive to 
forethought. 

§ 4. The first is, a gr.eat national 
measure of colonization. I mean, a 
grant of public money, sufficient to 
remove at once, and establish in the 
colonies, a considerable fraction of the 
youthful agricultural population. By 
giving the preference, as Mr. Wake¬ 
field proposes, to young couples, or 
when these cannot be obtained, to 
families with children nearly grown 
up, the expenditure would be made to 
go the farthest possible towards accom¬ 
plishing the end, while the colonies 
would be supplied with the greatest 
amount of what is there in deficiency 
and here in superfluity, present and 
prospective labour. It lias been shown 
by others, and the grounds of the opi¬ 
nion will be exhibited in a subsequent 
part of the present work, that coloni¬ 
zation on an adequate scale might be 
so conducted as to cost the country 
nothing, or nothing that would not 
be certainly repaid ; and that the funds 
required, even by way of advance, 
would not be drawn from the capital 
employed in maintaining labour, but 
from that surplus which cannot find 
employment at such profit as consti¬ 
tutes "an adequate remuneration for 
the abstinence of the possessor, and 
which is therefore sent abroad for in¬ 
vestment, or wasted at home in reck¬ 
less speculations. That portion of the 


231 

income of the country which is habi¬ 
tually ineffective for any purpose of 
benefit to the labouring class, would 
bear any draught which it could be 
necessary to make on it for the amount 
of emigration which is here in view. 

The second resource would be, to 
devote all common land, hereafter 
brought into cultivation, to raising a 
class of small proprietors. It has long 
enough been the practice to take these 
lands from public use, for the mere 
purpose of adding to the domains of 
the rich. It is time that what is left 
of them should be retained as an estate 
sacred to the benefit of the poor. The 
machinery for administering it already 
exists, having been created by the 
General Inclosure Act. What I w T ould 
propose (though, I confess, with small 
hope of its being soon adopted) is, that 
in all future cases in which common 
land is permitted to be enclosed, such 
portion should first be sold or assigned 
as is sufficient to compensate the 
owners of manorial or common rights, 
and that the remainder should be 
divided into sections of five acres or 
thereabouts, to be conferred in abso¬ 
lute property on individuals of the 
labouring class who would reclaim and 
bring them into cultivation by their 
own labour. The preference should 
be given to such labourers, and there 
are many of them, as had saved enough 
to maintain them until their first crop 
was got in, or whose character was 
such as to induce some responsible 
person to advance to them the requisite 
amount on their personal security. 
The tools, the manure, and in some 
cases the subsistence also, might be 
supplied by the parish, or by the state ; 
interest for the advance, at the rate 
yielded by the public funds, being laid 
on as a perpetual quit-rent, with power 
to the peasant to redeem it at any time 
for a moderate number of years pur¬ 
chase. These little landed estates 
might, if it w r ere thought necessary, be 
made indivisible by law ; though, if the 
plan worked in the manner designed, 

I should not apprehend any objection¬ 
able degree of subdivision. In case of 
intestacy, and in default of amicable 
arrangement among the heirs, they 



232 BOOK II. CHAPTER XIII. § 4. 


might be bought by government at 
their value, and regranted to some 
other labourer who could give security 
for the price. The desire to possess 
one of these small properties would 
probably become, as on the Continent, 
an inducement to prudence and eco¬ 
nomy pervading the whole labouring 
population ; and that great desideratum 
among a people of hired labourers 
would be provided, an intermediate 
class between them and their em¬ 
ployers ; affording them the double 
advantage, of an object for their hopes, 
and, as there would be good reason to 
anticipate, an example for their imi¬ 
tation. 

It would, however, be of little avail 
that either or both of these measures 
of relief should be adopted, unless on 
such a scale, as would enable the 
whole body of hired labourers remain¬ 
ing on the soil to obtain not merely 
employment, but a large addition to 
the present wages—such an addition 
as would enable them to live and bring 
up their children in a degree of com¬ 
fort and independence to which they 
have hitherto been strangers. When 
the object is to raise the permanent 
condition of a people, small means do 
not merely produce small effects, they 
produce no effect at all. Unless com¬ 
fort can be made as habitual to a 
whole generation as indigence is now, 
nothing is accomplished; and feeble 
half-measures do but fritter away re¬ 
sources, far better reserved until the 
improvement of public opinion and of 
education shall raise up politicians 
who will not think that merely because 
a scheme promises much, the part of 
statesmanship is to have nothing to do 
with it. 

I have left the preceding paragraphs 
as they were written, since they remain 
true in principle, though it is no 
longer urgent to apply their specific 
recommendations to the present state 
of this country. The extraordinary 


cheapening of the means of transport, 
which is one of the great scientific 
achievements of the age, and the know¬ 
ledge which nearly all classes of the 
people have now T acquired, or are in the 
way of acquiring, of the condition of 
the labour market in remote parts of 
the wmrld, have opened up a spon¬ 
taneous emigration from these islands 
to the new countries beyond the ocean, 
which does not tend to diminish, but 
to increase ; and which, without any 
national measure of systematic colo¬ 
nization, may prove sufficient to 
effect a material rise of wages in 
Great Britain, as it has already done 
in Ireland, and to maintain that rise 
unimpaired for one or more generations. 
Emigration, instead of an occasional 
vent, is becoming a steady outlet for 
superfluous numbers; and this new 
fact in modern history, together with 
the flush of prosperity occasioned by 
free trade, have granted to this over¬ 
crowded country a temporary breathing 
time, capable of being employed in 
accomplishing those moral and intel¬ 
lectual improvements in all classes of 
the people, the very poorest included, 
which would render improbable any 
relapse into the overpeopled state. 
Whether this golden opportunity will 
be properly used, depends on the 
wisdom of our councils ; and whatever 
depends on that, is always in a high 
degree precarious. The grounds of 
hope are, that there has been no time 
in our history when mental progress 
has depended so little on governments, 
and so much on the general disposition 
of the people; none in which the spirit 
of improvement has extended to so 
many branches of human affairs at 
once, nor in which all kinds of sugges¬ 
tions tending to the public good, in 
every department, from the humblest 
physical to the highest moral or intel¬ 
lectual, were heard with so little pre¬ 
judice, and had so good a chance of 
becoming known and being fairly con¬ 
sidered. 



DIFFERENCES OF WAGES. 


233 


CHAPTER XIV. 

OP TIIE DIFFERENCES OF WAGES IN DIFFERENT EMPLOYMENTS. 


§ 1. In treating of wages, we have 
hitherto confined ourselves to the 
causes which operate on them gene¬ 
rally, and en masse; the laws which 
govern the remuneration of ordinary 
or average labour: without reference 
to the existence of different kinds of 
work which are habitually paid at 
different rates, depending in some de¬ 
gree on different laws. We will now 
take into consideration these diffe¬ 
rences, and examine in what manner 
they affect or are affected by the con¬ 
clusions already established. 

A well-known and very popular 
chapter of Adam Smith* contains the 
best exposition yet given of this por¬ 
tion of the subject. I cannot indeed 
think his treatment so complete and 
exhaustive as it has sometimes been 
considered; hut as far as it goes, his 
analysis is tolerably successful. 

The differences, he says, arise partly 
from the policy of Europe, which no¬ 
where leaves things at perfect liberty, 
and partly “ from certain circumstances 
in the employments themselves, which 
either really, or at least in the imagi¬ 
nations of men, make up for a small 
ecuniary gain in some, and counter- 
alance a great one in others.” These 
circumstances he considers to be: 
“ First, the agreeahleness or disagree- 
ableness of the employments them¬ 
selves ; secondly, the easiness and 
cheapness, or the difficulty and expense 
of learning them; thirdly, the con¬ 
stancy or inconstancy of employment 
in them ; fourthly, the small or great 
trust which must he reposed in those 
who exercise them; and fifthly, the 
probability or improbability of success 
in them.” 

Several of these points he has very 
copiously illustrated : though his exam¬ 
ples are sometimes drawn from a state 
of facts now no longer existing. “ The 
wages of labour vary with the ease or 
* Wealth of Nations, book i. ch. 10. 


hardship, the cleanliness or dirtiness, 
the honourableness or dishonourable¬ 
ness of the employment. Thus, in 
most places, take the year round, a 
journeyman tailor earns less than a 
journeyman weaver. His work is 
much easier.” Things have much 
altered, as to a weaver’s remuneration, 
since Adam Smith’s time; and the 
artizan whose work was more difficult 
than that of a tailor, can never, I 
think, have been the common weaver. 
“ A journeyman weaver earns less 
than a journeyman smith. His work 
is not always easier, but it is much 
cleanlier.’’ A more probable explana¬ 
tion is, that it requires less bodily 
strength. “A journeyman black¬ 
smith, though an artificer, seldom earns 
so much in twelve hours as a collier, 
who is only a labourer, does in eight. 
His work is not quite so dirty, is less 
dangerous, and is carried on in day¬ 
light, and above ground. Honour 
makes a great part of the reward of 
all honourable professions. In point 
of pecuniary gain, all things consi¬ 
dered,” their recompense is, in his opi¬ 
nion, below the average. “Disgrace 
has the contrary effect. The trade of 
a butcher is a brutal and an odious 
business ; but it is in most places more 
profitable than the greater part of 
common trades. The most detestable 
of all employments, that of public exe¬ 
cutioner, is, in proportion to the quan¬ 
tity of work done, better paid than any 
common trade whatever.” 

One of the causes which make 
hand-loom weavers cling to their occu¬ 
pation in spite ot the scanty remunera¬ 
tion which it now yields, is said to be 
a peculiar attractiveness, arising from 
the freedom of action which it allows 
to the workman. “ He can play or 
idle,” says a recent authority,* “as 
feeling or inclination lead him; rise 

* Mr. Muggeridge’s Report to the Hand- 
loom Weavers Inquiry Commission. 



234 BOOK II. CHAPTER XIV. § 1. 


early or late, apply himself assiduously 
or carelessly, as he pleases, and work 
up at any time, by increased exertion, 
hours previously sacrificed to indul¬ 
gence or recreation. There is scarcely 
another condition of any portion of 
our working population thus free from 
external control. The factory opera¬ 
tive is not only mulcted of his wages 
for absence, hut, if of frequent occur¬ 
rence, discharged altogether from his 
employment. The bricklayer, the car¬ 
penter, the painter, the joiner, the 
stonemason, the outdoor labourer, have 
each their appointed daily hours of 
labour, a disregard of which would lead 
to the same result.” Accordingly, 
“ the weaver will stand by his loom 
while it will enable him to exist, how¬ 
ever miserably; and many, induced 
temporarily to quit it, have returned 
to it again, when work was to be 
had.” 

“Employment is much more con¬ 
stant,’’ continues Adam Smith, “in 
some trades than in others. In the 
greater part of manufactiu'es, a jour- 
rieyman may be pretty sme of employ¬ 
ment almost every day in the year 
that he is able to work” (the interrup¬ 
tions of business arising: from over- 
stocked markets, or from a suspension 
of demand, or from a commercial crisis, 
must be excepted). “ A mason or 
bricklayer, on the contrary, can work 
neither in hard frost nor in foul weather, 
and his employment at all other times 
depends upon the occasional calls of 
his customers. He is liable, in conse¬ 
quence, to be frequently without any. 
What he earns, therefore, while he is 
employed, must not only maintain him 
while he is idle, but make him some 
compensation for those anxious and 
desponding moments which the thought 
of so precarious a situation must some¬ 
times occasion. "When the computed 
earnings of the greater part of manu¬ 
facturers, accordingly, are nearly upon 
a level with the day wages of common 
labourers, those of masons and brick¬ 
layers are generally from one-half 
more to double those wages. No 
species of skilled labour, however, 
seems more easy to learn than that of 
masons and bricklayers. The high 


wages of those workmen, therefore, 
are not so much the recompense of 
their skill, as the compensation 
for the inconstancy of their employ¬ 
ment. 

“ When the inconstancy of the 
employment is combined with the 
hardship, disagreeableness, and dirti¬ 
ness of the work, it sometimes raises 
the wages of the most common labour 
above those of the most skilful artificers. 
A collier working by the piece is 
supposed, at Newcastle, to earn com¬ 
monly about double, and in many 
parts of Scotland about three times, 
the wages of common labour. His 
high wages arise altogether from the 
hardship, disagreeableness, and dirti¬ 
ness of his work. His employment 
may, upon most occasions, be as con¬ 
stant as he pleases. The coal-heavers 
in London exercise a trade which in 
hardship, dirtiness, and disagreeable¬ 
ness, almost equals that of colliers; 
and from the unavoidable irregularity 
in the arrivals of coalships, the employ¬ 
ment of the greater part of them is 
necessarily very inconstant. If col¬ 
liers, therefore, commonly earn double 
and triple the wages of common labour, 
it ought not to seem unreasonable that 
coal-heavers should sometimes earn 
four or five times those wages. In the 
inquiry made into their condition a few 
years ago, it was found that at the 
rate at which they were then paid, 
they could earn about four times the 
wages of common labour in London. 
How extravagant soever these earn¬ 
ings may appear, if they were more 
than sufficient to compensate all the 
disagreeable circumstances of the 
business, there would soon be so great 
a number of competitors as, in a trade 
which has no exclusive privilege, would 
quickly reduce them to a lower rate.’’ 

These inequalities of remuneration, 
which are supposed to compensate for 
the disagreeable circumstances of par¬ 
ticular employments, would, under cer¬ 
tain conditions, be natural conse¬ 
quences of perfectly free competition: 
and as between employments of about 
the same grade, and filled by nearly 
the same description of people, they 
are, no doubt, for the most part, 



DIFFERENCES OF WAGES. 


realised in practice. But it is alto¬ 
gether a false view of the state of 
facts, to present this as the relation 
which generally exists between agree¬ 
able and disagreeable employments. 
The really exhausting and the really 
repulsive labours, instead of beifig 
better paid than others, are almost in¬ 
variably paid the worst of all, because 
performed by those who have no choice. 
It would be otherwise in a favourable 
state of the general labour market. If 
the labourers in the aggregate, instead 
of exceeding, fell short of the amount 
of employment, work which was gene¬ 
rally disliked would not be undertaken, 
except for more than ordinary wages. 
But when the supply of labour so far 
exceeds the demand that to find em¬ 
ployment at all is an uncertainty, and 
to be offered it on any terms a favour, 
the case is totally the reverse. Desi¬ 
rable labourers, those whom every one 
is anxious to have, can still exercise a 
choice. The undesirable must take 
what they can get. The more revolt¬ 
ing the occupation, the more certain it 
is to receive the minimum of remunera¬ 
tion, because it devolves on the most 
helpless and degraded, on those who 
from squalid poverty, or from want of 
skill and education, are rejected from 
all other employments. Partly from 
this cause, and partly from the natural 
and artificial monopolies which will be 
spoken of presently, the inequalities of 
wages are generally in an opposite 
direction to the equitable principle of 
compensation erroneously represented 
by Adam Smith as the general law of 
the remuneration of labour. The hard¬ 
ships and the earnings, instead of being 
directly proportional, as in any just 
arrangements of society they would be, 
are generally in an inverse ratio to one 
another. 

One of the points best illustrated by 
Adam Smith, is the influence exercised 
on the remuneration of an employment 
by the uncertainty of success in it. If 
the chances are great of total failure, 
the reward in case of success must be 
sufficient to make up, in the general 
estimation, for those adverse chances. 
But, owing to another principle of 
human nature, if the reward comes in 


235 

the shape of a few great prizes, it 
usually attracts competitors in such 
numbers, that the average remunera¬ 
tion may be reduced not only to zero, 
but even to a negative quantity. The 
success of lotteries proves that this is 
possible: since the aggregate body of 
adventurers in lotteries necessarily 
lose, otherwise the undertakers could 
not gain. The case of certain pro¬ 
fessions is considered by Adam Smith 
to be similar. “ The probability that 
any particular person shall ever be 
qualified for the employment to which 
he is educated, is very different in 
different occupations. In tire greater 
part of mechanic trades, success is 
almost certain, but very uncertain in 
the liberal professions. Put your son 
apprentice to a shoemaker, there is 
little doubt of his learning to make 
a pair of shoes; but send him to 
study the law, it is at least twenty to 
one if ever he makes such proficiency 
as will enable him to live by the busi¬ 
ness. In a perfectly fair lottery, those 
'who draw the prizes ought to gain all 
that is lost by those who draw the 
blanks. In a profession where twenty 
fail for one that succeeds, that one 
ought to gain all that should have 
been gained by the unsuccessful twenty. 
The counsellor-at-law, who, perhaps, at 
near forty years of age, begins to make 
something by his profession, ought to 
receive the retribution, not only of his 
own so tedious and expensive educa¬ 
tion, but of that of more than twenty 
others who are never likely to make 
anything by it. Flow extravagant 
soever the fees of counsellors-at-law 
may sometimes appear, their real retri¬ 
bution is never equal to this. Com¬ 
pute in any particular place what is 
likely to be annually gained, and what 
is likely to be annually spent, by all 
the different workmen in any common 
trade, such as that of shoemakers or 
weavers, and you will find that the 
former sum will generally exceed the 
latter. But make the same computa¬ 
tion with regard to all the counsellors 
and students of law, in all the different 
inns of court, and you will find that 
their annual gains bear but a small 
proportion to their annual expense, 



BOOK II. CHAPTER XIY. § 2. 


236 

even though you rate the former as 
high, and the latter as low, as can 
well be done.” 

Whether this is true in our own day, 
when the gains of the few are incom¬ 
parably greater than in the time of 
Adam Smith, but also the unsuccessful 
aspirants much more numerous, those 
who have the appropriate information 
must decide. It does not, however, 
seem to be sufficiently considered by 
Adam Smith, that the prizes which he 
speaks of comprise not the fees of 
counsel only, but the places of emolu¬ 
ment and honour to which their pro¬ 
fession gives access, together with the 
coveted distinction of a conspicuous 
position in the public eye. 

Even where there are no great 
prizes, the mere love of excitement is 
sometimes enough to cause an adven¬ 
turous employment to be overstocked. 
This is apparent “in the readiness of 
the common people to enlist as soldiers, 
or to go to sea. . . . The dangers and 
hair-breadth escapes of a life of adven¬ 
tures, instead of disheartening young 
people, seem frequently to recommend 
a trade to them. A tender mother, 
among the inferior ranks of people, is 
often afraid to send her son to school 
at a sea-port town, lest the sight of the 
ships and the conversation and adven¬ 
tures of the sailors should entice him 
to go to sea. The distant prospect of 
hazards, from which we can hope to 
extricate ourselves by courage and 
address, is not disagreeable to us, and 
does not raise the wages of labour 
in any employment. It is otherwise 
wdth those in which courage and 
address can be of no avail. In trades 
which are known to be very unwhole¬ 
some, the wages of labour are always 
remarkably high. Unwholesomeness 
is a species of disagreeableness, and 
its effects upon the w’ages of labour 
are to be ranked under that general 
head.” 

§ 2. The preceding are cases in 
which inequality of remuneration is 
necessary to produce equality of attrac¬ 
tiveness, and are examples of the 
equalizing effect of free competition. 
The following are cases of real in¬ 


equality, and arise from a different 
principle. “ The wages of labour 
vary according to the small or great 
trust which must be reposed in the 
workmen. The w r ages of goldsmiths 
and jewellers are everywhere superior 
to those of many other workmen, not 
only of equal, but of much superior 
ingenuity; on account of the precious 
materials with which they are intrusted. 
We trust our health to the physician, 
our fortune and sometimes our life and 
reputation to the lawyer and attorney. 
Such confidence could not safely be 
reposed in peoj3le of a very mean or 
low condition. Their reward must be 
such, therefore, as may give them that 
rank in society which so important 
a trust requires.” 

The superiority of reward is not 
here the consequence of competition, 
but of its absence ; not a compensation 
for disadvantages inherent in the em¬ 
ployment, but an extra advantage ; a 
kind of monopoly price, the effect not 
of a legal, but of what has been termed 
a natural monopoly. If all labourers 
■were trustworthy it would not be 
necessary to give extra pay to working 
goldsmiths on account of the trust. 
The degree of integrity required being 
supposed to be uncommon, those who 
can make it appear that they possess it 
are able to take advantage of the 
peculiarity, and obtain higher pay in 
proportion to its rarity. This opens a 
class of considerations which Adam 
Smith, and most other political econo¬ 
mists, have taken into far too little 
account, and from inattention to wdiich, 
he has given a most imperfect exposi¬ 
tion of the wide difference between the 
remuneration of common labour and 
that of skilled employments. 

Some employments require a much 
longer time to learn, and a much more 
expensive course of instruction than 
others ; and to this extent there is, as 
explained by Adam Smith, an inherent 
reason for their being more highly 
remunerated. If an artizan must 
work several years at learning his trade 
before he can earn anything, and seve¬ 
ral years more before becoming suffi¬ 
ciently skilful for its finer operations, 
he must have a prospect of at last 



DIFFEEENCES OF WAGES. 237 


earning enough to pay the wages of all 
this past labour, with compensation 
for the delay of payment, and an 
indemnity for the expenses of his 
education. Plis wages, consequently, 
must yield, over and above the ordi¬ 
nary amount, an annuity sufficient to 
repay these sums, with the common 
rate of profit, within the number of 
years he can expect to live and be in 
working condition. This, which is 
necessary to place the skilled employ¬ 
ments, all circumstances taken to¬ 
gether, on the same level of advantage 
with the unskilled, is the smallest 
difference which can exist for any 
length of time between the two remu¬ 
nerations, since otherwise no one would 
learn the skilled employments. And 
this amount of difference is all which 
Adam Smith’s principles account for. 
When the disparity is greater, he 
seems to think that it must be ex¬ 
plained by apprentice laws, and the 
rules of corporations, which restrict 
admission into many of the skilled 
employments. But, independently of 
these or any other artificial monopolies, 
there is a natural monopoly in favour 
of skilled labourers against the un¬ 
skilled, which makes the difference of 
reward exceed, sometimes in a manifold 
proportion, what is sufficient merely to 
equalize their advantages. If un¬ 
skilled labourers had it iii their power 
to compete with skilled, by merely 
taking the trouble of learning the 
trade, the difference of wages might not 
exceed what would compensate them 
for that trouble, at the ordinary rate at 
which labour is remunerated. But the 
fact that a course of instruction is 
required, of even a low degree of cost¬ 
liness, or that the labourer must be 
maintained for a considerable time 
from other sources, suffices everywhere 
to exclude the great body of the labour¬ 
ing people from the possibility of any 
such competition. Until lately, ail 
employments which required even the 
humble education, of reading and 
writing, could be recruited only from a 
select class, the majority having had 
no opportunity of acquiring those 
attainments. All such employments, 
accordingly, were immensely overpaid, 


as measured by the ordinary remune¬ 
ration of labour. Since reading and 
writing have been brought within the 
reach of a multitude, the monopolv 
price of the lower grade of educated 
employments has greatly fallen, the 
competition for them having increased 
in an almost incredible degree. There 
is still, however, a much greater dis¬ 
parity than can be accounted for on 
the principle of competition. A clerk 
from whom nothing is required but the 
mechanical labour of copying, gains 
more than an equivalent for his mere 
exertion if he receives the wages of a 
bricklayer’s labourer. His work is nut 
a tenth part as hard, it is quite as easy 
to learn, and his condition is less pre¬ 
carious, a clerk’s place being generally 
a place for life. The higher rate of 
his remuneration, therefore, must be 
partly ascribed to monopoly, the small 
degree of education required being not 
even yet so generally diffused as to 
call forth the natural number of com¬ 
petitors ; and partly to the remaining 
influence of an ancient custom, which 
requires that clerks should maintain 
the dress and appearance of a more 
highly paid class. In some manual 
employments, requiring a nicety of 
hand which can only be acquired by 
long practice, it is difficult to obtain at 
any cost workmen in sufficient num¬ 
bers, who are capable of the most 
delicate kind of work ; and the wages 
paid to them are only limited by the 
price which purchasers are willing to 
give for the commodity they produce. 
This is the case with some working 
watchmakers, and with the makers of 
some astronomical and optical instru¬ 
ments. If workmen competent to such 
employments were ten times as nume¬ 
rous as they are, there would be pur¬ 
chasers for all which they could make, 
not indeed at the present prices, but at 
those lower prices which would be the 
natural consequence of lower wages. 
Similar considerations apply in a still 
greater degree to employments which 
it is attempted to coniine to persons of 
a certain social rank, such as what are 
called the liberal professions; into 
which a person of what is considered 
too low a class of society, is not easily 






238 BOOK II. CHAPTER XIV. § 3. 


admitted, and if admitted, does not 
easily succeed. 

So complete, indeed, lias hitherto 
been the separation, so strongly marked 
the line of demarcation, between the 
different grades of labourers, as to be 
almost equivalent to an hereditary dis¬ 
tinction of caste; each employment 
being chiefly recruited from the chil¬ 
dren of those already employed in it, 
or in employments of the same rank 
with it in social estimation, or from 
the children of persons who, if origi¬ 
nally of a lower rank, have succeeded 
in l’aising themselves by their exertions. 
The liberal professions are mostly sup¬ 
plied by the sons of either the profes¬ 
sional, or the idle classes: the more 
highly skilled manual employments are 
filled up from the sons of skilled arti- 
zans, or the class of tradesmen who 
rank with them: the lower classes of 
skilled employments are in a similar 
case; and unskilled labourers, with 
occasional exceptions, remain from 
father to son in their pristine condition. 
Consequently the wages of each class 
have hitherto been regulated by the 
increase of its own population, rather 
than of the general population of the 
country. If the professions are over¬ 
stocked, it is because the class of so¬ 
ciety from which they have always 
mainly been supplied, has greatly in¬ 
creased in number, and because most 
of that class have numerous families, 
and bring up some at least of their sons 
to professions. If the wages of artizans 
remain so much higher than those of 
common labourers, it is because arti¬ 
zans are a more prudent class, and do 
not marry so early or so inconsiderately. 
The changes, however, now so rapidly 
taking place in usages and ideas, are 
undermining all these distinctions ; the 
habits or disabilities which chained 
people to their hereditary condition are 
fast wearing away, and every class is 
exposed to increased and increasing 
competition from at least the class im¬ 
mediately below it. The general re¬ 
laxation of conventional barriers, and 
the increased facilities of education 
which already are, and will be in a 
nmch greater degree, brought within 
the reach of all, tend to produce, among 


many excellent effects, one whicn is 
the reverse; they tend to bring down 
the wages of skilled labour. The in¬ 
equality of remuneration between the 
skilled and the unskilled is, without 
doubt, very much greater than is justi¬ 
fiable ; but it is desirable that this 
should be corrected by raising the un¬ 
skilled, not by lowering the skilled. If, 
however, the other changes taking 
place in society are not accompanied 
by a strengthening of the checks to 
population on the part of labourers 
generally, there will be a tendency to 
bring the lower grades of skilled la¬ 
bourers under the influence of a rate of 
increase regulated by a lower standard 
of living than their own, and thus to de¬ 
teriorate their condition without raising 
that of the general mass; the stimulus 
given to the multiplication of the lowest 
class being sufficient to fill up without 
difficulty the additional space gained 
by them from those immediately above. 

§ 3. A modifying circumstance still 
remains to be noticed, which interferes 
to some extent with the operation of 
the principles thus far brought to view. 
While it is true, as a general rule, that 
the earnings of skilled labour, and es¬ 
pecially of any labour which requires 
school education, are at a monopoly 
rate, from the impossibility, to the mass 
of the people, of obtaining that educa¬ 
tion ; it is also true that the policy of 
nations, or the bounty of individuals, 
formerly did much to counteract the 
effect of this limitation of competition, 
by offering eleemosynary instruction 
to a much larger class of persons than 
could have obtained the same advan¬ 
tages by paying their price. Adam 
Smith has pointed out the operation 
of this cause in keeping down the re¬ 
muneration of scholarly or bookish oc¬ 
cupations generally, and in particular 
of clergymen, literary men, and school¬ 
masters, or other teachers of youth. I 
cannot better set forth this part of the 
subject than in his words. 

“ It has been considered as of so 
much importance that a proper number 
of young people should be educated for 
certain professions, that sometimes the 
public, and sometimes the piety of 




DIFFERENCES OF WAGES. 


private founders, have established 
many pensions, scholarships, exhibi¬ 
tions, bursaries, &c. for this purpose, 
which draw many more people into 
those trades than could otherwise pre¬ 
tend to follow them. In all Christian 
countries, I believe, the education of the 
greater part of churchmen is paid for in 
this manner. Very few of them are edu¬ 
cated altogether at their own expense. 
The long, tedious, and expensive edu¬ 
cation, therefore, of those who are, will 
not always procure them a suitable re¬ 
ward, the church being crowded with peo¬ 
ple who, in order to get employment, are 
willing to accept of a much smaller re¬ 
compense than what such an education 
would otherwise have entitled them to ; 
and in this manner the competition of 
the poor takes away the reward of the 
rich. It would be indecent, no doubt, 
to compare either a curate or a chap¬ 
lain with a journeyman in any common 
trade. The pay of a curate or a chap¬ 
lain, however, may very properly be 
considered as of the same nature 'with 
the wages of a journeyman. They 
are, all three, paid for their work ac¬ 
cording to the contract which they may 
happen to make with their respective 
superiors. Till after the middle of the 
fourteenth century, five marks, con¬ 
taining as much silver as ten pounds 
of our present money, was in England 
the usual pay of a curate or a stipen¬ 
diary paiish priest, as we find it regu¬ 
lated by the decrees of several different 
national councils. At the same period 
fourpence a day, containing the same 
quantity of silver as a shilling of our 
present money, Avas declared to be the 
pay of a master-mason, and threepence 
a day, equal to ninepence of our present 
money, that of a journeyman mason.* 
The wages of both these labourers, 
therefore, supposing them to have been 
constantly employed, Avere much supe¬ 
rior to those of the curate. The Avages 
of the master-mason, supposing him to 
lnwe been without employment one- 
third of the year, would have fully 
equalled them. By the 12th of Queen 
Anne, c. 12, it is declared ‘That 
whereas for Avant of sufficient mainte- 

* “ See the Statute of Labourers, 25 Edw. 
III.” 


239 

nance and encouragement to curates, 
the cures liaA’e in several places been 
meanly supplied, the bishop is there¬ 
fore empoAvered to appoint by writing 
under his hand and seal a sufficient 
certain stipend or alloAvance, not ex¬ 
ceeding fifty, and not less than twenty 
pounds a year.’ Forty pounds a year 
is reckoned at present very good pay 
for a curate, and notAvithstanding this 
act of parliament, there are many cura¬ 
cies under twent} r pounds a year. This 
last sum does not exceed Avhat is fre¬ 
quently earned by common labourers 
in many country parishes. Whenever 
the law has attempted to regulate the 
Avages of workmen, it has always been 
rather to loAver them than to raise 
them. But the Iuav has upon many 
occasions attempted to raise the wages 
of curates, and for the dignity of the 
Church, to oblige the rectors of parishes 
to give them more than the wretched 
maintenance which they themselves 
might be willing to accept of. And 
in both cases the law seems to have 
been equally ineffectual, and has never 
been either able to raise the wages of 
curates or to sink those of labourers 
to the degree that Avas intended, be¬ 
cause it has never been able to hinder 
either the one from being willing to 
accept of less than the legal allowance, 
on account of the indigence of their 
situation and the multitude of their 
competitors; or the other from re¬ 
ceiving more, on account of the con¬ 
trary competition of those AAdio expected 
to derive either profit or pleasure from 
employing them.” 

“ In professions in which there are 
no benefices, such as law (?) and physic, 
if an equal proportion of people were 
educated at the public expense, the 
competition would soon be so great as 
to sink very much their pecuniary 
reAvard. It might then not be Avorth 
any man’s while to educate his son to 
either of those professions at his own 
expense. They Avould be entirely 
abandoned to such as had been edu¬ 
cated by those public charities; Avhose 
numbers and necessities AA r ould oblige 
them in general to content them¬ 
selves Avith a very miserable recom¬ 
pense. 



BOOK II. CHAPTER XIV. § 4. 


240 

“ That unprosperous race of men, 
commonly called men of letters, are 
pretty much in the situation which 
lawyers and physicians probably would 
he in upon the foregoing supposition. 
In every part of Europe, the greater 
part of them have been educated for 
the church, but have been hindered 
by different reasons from entering into 
holy orders. They have generally, 
therefore, been educated at the public 
expense, and their numbers are every¬ 
where so great as to reduce the price 
of their labour to a very paltry recom¬ 
pense. 

“ Before the invention of the art of 
printing, the only employment by 
which a man of letters could make 
anything by his talents, was that of a 
public or private teacher, or by com¬ 
municating to other people the curious 
and useful knowledge which he had 
acquired himself: and this is still 
surely a more honourable, a more use¬ 
ful, and in general even a more pro¬ 
fitable employment than that other of 
writing for a bookseller, to which the 
art of printing has given occasion. 
The time and study, the genius, know¬ 
ledge, and application requisite to 
qualify an eminent teacher of the 
sciences, are at least equal to what is 
necessary for the greatest practitioners 
in law and physic. But the usual re¬ 
ward of the eminent teacher hears no 
proportion to that of the lawyer or 
physician; because the trade of the 
one is crowded with indigent people 
who have been brought up to it at 
the public expense, whereas those of 
the other two are encumbered with 
very few who have not been educated 
at their own. The usual recompense, 
however, of public and private teachers, 
small as it may appear, would un¬ 
doubtedly be less than it is, if the 
competition of those yet more indigent 
men of letters who write for bread was 
not taken out of the market. Before 
the invention of the art of printing, a 
scholar and a beggar seem to have 
been terms very nearly synonymous. 
The different governors of the univer¬ 
sities before that time appear to have 
often granted licenses to their scholars 
to beg.” 


§ 4. The demand for literary la¬ 
bour has so greatly increased since 
Adam Smith wrote, while the provi¬ 
sions for eleemosynary education have 
nowhere been much added to, and in 
the countries which have undergone 
revolutions have been much dimi¬ 
nished, that little effect in keeping 
down the recompense of literary labour 
can now be ascribed to the influence of 
those institutions. But an effect nearly 
equivalent is now produced by a cause 
somewhat similar—the competition of 
persons who, by analogy with other 
arts, may be called amateurs. Lite¬ 
rary occupation is one of those pursuits 
in which success may be attained by 
persons the greater part of whose time 
is taken up by other employments ; and 
the education necessary for it, is the 
common education of all cultivated 
persons. The inducements to it, inde¬ 
pendently of money, in the present 
state of the world, to all who have 
cither vanity to gratify, or personal or 
public objects to promote, are strong. 
These motives now attract into this 
career a great and increasing number 
of persons who do not need its pecu¬ 
niary fruits, and who would equally re¬ 
sort to it if it afforded no remuneration 
at all. In our own country (to cite 
known examples), the most influential, 
and on the whole most eminent philo¬ 
sophical writer of recent times (Ben- 
tham), the greatest political economist 
(Ricardo), the most ephemerally cele¬ 
brated, and the really greatest poets 
(Byron and Shelley), and the most suc¬ 
cessful writer of prose fiction (Scott), 
were none of them authors by profes¬ 
sion ; and only two of the five, Scott 
and Byron, could have supported them¬ 
selves by the works which they wrote. 
Nearly all the high departments of 
authorship are, to a great extent, simi¬ 
larly filled. In consequence, although 
the highest pecuniary prizes of suc¬ 
cessful authorship are incomparably 
greater than at any former period, yet 
on any rational calculation of the 
chances, in the existing competition, 
scarcely any writer can hope to gain a 
living by books, and to do so by maga¬ 
zines and reviews becomes daily more 
difficult. It is only the more trouble- 



DIFFERENCES OF WAGES. 


some find disagreeable kinds of literary 
labour, and those which confer no per¬ 
sonal celebrity, such as most of those 
connected with newspapers, or with the 
smaller periodicals, on which an edu¬ 
cated person can now rely for subsist¬ 
ence. Of these, the remuneration is, 
on the whole, decidedly high ; because, 
though exposed to the competition of 
what used to be called “ poor scholars” 
(persons who have received a learned 
education from some public or private 
charity), they are exempt from that of 
amateurs, those who have other means 
of support being seldom candidates for 
such employments. Whether these 
considerations are not connected with 
something radically amiss in the idea 
of authorship as a profession, and whe¬ 
ther any social arrangement under 
which the teachers of mankind consist 
of persons giving out doctrines for 
bread, is suited to be, or can possibly 
be, a permanent thing—would be a 
subject well worthy of the attention of 
thinkers. 

The clerical, like the literary profes¬ 
sion, is frequently adopted by persons 
of independent means, either from reli¬ 
gious zeal, or for the sake of the honour 
or usefulness which may belong to it, 
or for a chance of the high prizes which 
it holds out; and it is now principally 
for this reason that the salaries of 
curates are so low; those salaries, 
though considerably raised by the in¬ 
fluence of public opinion, being still 
generally insufficient as the sole means 
of support for one who has to maintain 
the externals expected from a clergy 
man of the established church. 

When an occupation is carried on 
chiefly by persons who derive the main 
pr^i'on of their subsistence from other 
sotiT-ces, its remuneration may be lower 
almost to any extent, than the wages 
of equally severe labour in other em¬ 
ployments. The principal example of 
the kind is domestic manufactures. 
When spinning and knitting were car¬ 
ried on in every cottage, by families 
deriving their principal support from 
agriculture, the price at which their 
produce was sold (which constituted 
the remuneration of the labour) was 
often so low, that there would have 
f.E, 


241 

been required great perfection 6f ma¬ 
chinery to undersell it. The amount 
of the remuneration in such a case* 
depends chiefly upon whether the quan¬ 
tity of the commodity, produced by this 
description of labour, suffices to Supply 
the whole of the demand. If it does 
not, and there is consequently a neces¬ 
sity for some labourers who devote 
themselves entirely to the employment, 
the price of the article must be suffi¬ 
cient to pay those labourers at the 
ordinary rate, and to reward therefore 
very handsomely the domestic pro¬ 
ducers. But if the demand is so limited 
that the domestic manufacture can do 
more than satisfy it, the price is natu¬ 
rally kept down to the lowest rate at 
which peasant families think it worth 
while to continue the production. It 
is, no doubt, because the Swiss artizans 
do not depend for the whole of their 
subsistence upon their looms, that Zu¬ 
rich is able to maintain a competition 
in the European market with English 
capital, and English fuel and ma¬ 
chinery.* Thus far, as to the remu¬ 
neration of the subsidiary employment; 
but the effect to the labourers of hav¬ 
ing this additional resource, is almost 
certain to be (unless peculiar counter¬ 
acting causes intervene) a propor¬ 
tional diminution of the wages of their 
main occupation. The habits of the 
people (as has already been so often 
remarked) everywhere require some 
particular scale of living, and no more, 
as the condition without which they 
will not bring up a family. Whether 
the income which maintains them in 
this condition comes from one source 
or from two, makes no difference : if 
there is a second source of income, they 
require less from the first; and multi¬ 
ply (at least this has always hitherto 
been the case) to a point which leaves 
them no more from both employments, 

# Four-fifths of the manufacturers of the 
Canton of Zurich are small farmers, gene¬ 
rally proprietors of their farms. The cotton 
manufacture occupies either wholly or par¬ 
tially 23,000 people, nearly a tenth part of the 
population; and they consume a greater 
quantity of cotton per inhabitant than either 
France or England. See the Statistical Ac¬ 
count of Zurich, formerly cited, pp. 105,108, 






242 BOOK IT. CHAPTER XIV. § 5. 


than they would probably have had 
from either if it had been their sole 
occupation. 

For the same reason it is found that, 
coster is paribus , those trades are gene¬ 
rally the worst paid, in which the 
wife and children of the artizan aid in 
the work. The income which the 
habits of the class demand, and down 
to which they are almost sure to mul¬ 
tiply, is made up, in those trades, by 
the earnings of the whole family, while 
in others the same income must be ob¬ 
tained by the labour of the man alone. 
It is even probable that their collective 
earnings will amount to a smaller sum 
tl an those of the man alone in other 
trade;; because the prudential re¬ 
straint on marriage is unusually weak 
when the only consequence imme¬ 
diately felt is an improvement of cir¬ 
cumstances, the joint earnings of the 
two going further in their domestic 
economy after marriage than before. 
Such accordingly is the fact, in the 
case of hand-loom weavers. In most 
kinds of weaving, women can and do 
earn as much as men, and children are 
employed at a very early age ; but the 
aggregate earnings of a family are 
lower than in almost any other kind of 
industry, and the marriages earlier. It 
is noticeable also that there are cer¬ 
tain branches of hand-loom weaving in 
which wages are much above the rate 
common in the trade, and that these 
are the branches in which neither 
women nor young persons are em¬ 
ployed. These facts were authenti¬ 
cated by the inquiries of the Hand- 
loom Weavers Commission, which made 
its report in 1841. No argument can 
be hence derived for the exclusion of 
women from the liberty of competing 
in the labour market; since even 
when no more is earned by the labour 
of a man and a woman than would 
have been earned by the man alone, 
the advantage to the woman of not de¬ 
pending on a master for subsistence 
may be more than an equivalent. It 
cannot, however, be considered desir¬ 
able as a permanent element in the 
condition of a labouring class, that the 
mother of the family (the case of sin¬ 
gle women is totally different) should 


be under the necessity of working for 
subsistence, at least elsewhere than in 
their place of abode. In the case of 
children, who are necessarily depend¬ 
ent, the influence of their competition 
in depressing the labour market is an 
important element in the question of 
limiting their labour, in order to pro¬ 
vide better for their education. 

§ 5. It deserves consideration, why 
the wages of women are generally 
lower, and very much lower, than those 
of men. They are not universally so. 
Where men and women work at the 
same employment, if it be one for 
which they are equally fitted in point 
of physical power, they are not always 
unequally paid. Women, in factories, 
sometimes earn as much as men; and 
so they do in hand-loom weaving, 
which, being paid by the piece, brings 
their efficiency to a sure test. When 
the efficiency is equal, but the pay un¬ 
equal, the only explanation that can 
be given is custom ; grounded either 
in a prejudice, or in the present con¬ 
stitution of society, which, making 
almost every woman, socially speak¬ 
ing, an appendage of some’man, en¬ 
ables men to take systematically the 
lion’s share of whatever belongs to 
both. But the principal question re¬ 
lates to the peculiar employments of 
women. The remuneration of these is 
always, I believe, greatly below that of 
employments of equal skill and equal 
disagreeableness, carried on by men. 
In some of these cases the explanation 
is evidently that already given : as in 
the case of domestic servants, whose 
wages, speaking generally, are not 
determined by competition, but are 
greatly in excess of the market value 
of the labour, and in this excess, as in 
almost all things which are regulated 
by custom, the male sex obtains by far 
the largest share. In the occupations 
in which employers take full advantage 
of competition, the low wages of women 
as compared with the ordinary earn¬ 
ings of men, are a proof that the em¬ 
ployments are overstocked: that al¬ 
though so much smaller a number of 
women, than of men, support them¬ 
selves by wages, the occupations which 





DIFFERENCES OF WAGES. 


law and usage make accessible to them 
are comparatively so few, that the field 
of their employment is still more over¬ 
crowded. It must be observed, that as 
matters now stand, a sufficient degree 
of overcrowding may depress the wages 
of women to a much lower minimum 
than those of men. The wages, at 
least of single women, must be equal 
to their support; but need not be more 
than equal to it; the minimum, in their 
case, is the pittance absolutely requi¬ 
site for the sustenance of one human 
being. Now the lowest point to which 
the most superabundant competition 
can permanently depress the wages of 
a man, is always somewhat more than 
this. Where the wife of a labouring 
man does not by general custom con¬ 
tribute to his earnings, the man’s wages 
must be at least sufficient to support 
himself, a wife, and a number of chil¬ 
dren adequate to keep up the popula¬ 
tion, since if it were less, the population 
would not be kept up. And even if 
the wife earns something, their joint 
wages must be sufficient to support, 
not only themselves, but (at least for 
some years) their children also. The 
ne plus ultra of low wages, therefore, 
(except during some transitory crisis, 
or in some decaying employment,) can 
hardly occur in any occupation which 
the person employed has to live -by, 
except the occupations of women. 

§ 6. Thus far, we have, through 
this discussion, proceeded on the sup¬ 
position that competition is free, so far 
as regards human interference; being 
limited only by-natural causes, or by 
the unintended effect of general social 
circumstances. But law or custom 
may interfere to limit competition. 
If apprentice laws, or the regulations 
of' corporate bodies, make the access 
to a particular employment slow, 
costly, or difficult, the wages of that 
employment may be kept much above 
their natural proportion to the wages 
of common labour. They might be so 
kept without any assignable limit, 
were it not that wages which exceed 
the usual rate require corresponding 
prices, and that there is a limit to the 
price at which even a restricted num- 


243 

her of producers can dispose of all they 
produce. In most civilized countries, 
the restrictions of this kind which 
once existed have been either abo¬ 
lished or very much relaxed, and will, 
no doubt, soon disappear entirely. In 
some trades, however, and to some ex¬ 
tent, the combinations of workmen 
roduce a similar effect. Those com- 
inations always fail to uphold wages 
at an artificial rate, unless they also 
limit the number of competitors. But 
they do occasionally succeed in accom¬ 
plishing this. In several trades the 
workmen have been able to make it 
almost impracticable for strangers to ob¬ 
tain admission either as journeymen or 
as apprentices, except in limited num ¬ 
bers, and under such restrictions as 
they choose to impose. It was given 
in evidenoe to the Hand-loom Weavers 
Commission, that this is one of the 
hardships which aggravate the grievous 
condition of that depressed class. Their 
own employment is overstocked and 
almost ruined; but there are many 
other trades which it would not be dif¬ 
ficult for them to learn: to this, how¬ 
ever, the combinations of workmen in 
those other trades are said to interpose 
an obstacle hitherto insurmountable. 

Notwithstanding, however, the cruel 
manner in which the exclusive prin¬ 
ciple of these combinations operates in 
a case of this peculiar nature, the 
question, whether they are on the 
whole more useful or mischievous, re¬ 
quires to be decided on an enlarged 
-consideration of consequences, among 
which such a fact as this is not one of 
the most important items. Butting 
aside the atrocities sometimes com¬ 
mitted by workmen in the way of per¬ 
sonal outrage or intimidation, which 
cannot be too rigidly repressed; if the 
present state of the general habits of 
the people were to remain for ever un¬ 
improved, these partial combinations, 
in so far as they do succeed in keeping 
up the wages of any trade by limiting 
its numbers, might be looked upon as 
simply intrenching round a particular 
spot against the inroads of over-popu¬ 
lation, and making the wages of the 
class depend upon their own rate of 
increase, instead of depending on that 




BOOK II. CHAPTER XIV. § 7. 


244 

of a more reckless and improvident 
class than themselves. What at first 
sight seems the injustice of excluding 
the more numerous body from sharing 
the gains of a comparatively few, dis¬ 
appears when we consider that by 
being admitted, they would not be 
made better off, for more than a short 
time; the only permanent effect which 
their admission would produce, would 
be to lower the others to their own 
level. To what extent the force of 
this consideration is annulled when a 
tendency commences towards dimi¬ 
nished over-crowding in the labouring 
classes generally, and what grounds of 
a different nature there may be for re¬ 
garding the existence of trade combi¬ 
nations as rather to be desired than 
deprecated, will be considered in a 
subsequent chapter of this work, with 
the subject of Combination Laws. 

§ 7. To conclude this subject, I 
must repeat an observation already 
made, that there are kinds of labour of 
which the wages are fixed by custom, 
and not by competition. Such are the 
fees or charges of professional persons: 
of physicians, surgeons, barristers, and 
even attorneys. These, as a general 
rule, do not vary, and though competi¬ 
tion operates upon those classes as 
much as upon any others, it is by di¬ 
viding the business, not, in general, by 
diminishing the rate at which it is 
paid. The cause of this, perhaps, has 
been the prevalence of an opinion that 
such persons are more trustworthy if 
paid highly in proportion to the work 
they perform; insomuch that if a lawyer 
or a physician offered his services at 
less than the ordinary rate, instead of 
gaining more practice, he would pro¬ 
bably lose that which he already had. 
For analogous reasons it is usual to 


pay greatly beyond the market price of 
their labour, all persons in whom the 
employer wishes to place peculiar trust, 
or from whom he requires something 
besides their mere services. For ex¬ 
ample, most persons who can afford it, 
pay to their domestic servants higher 
wages than would purchase in the 
market the labour of persons fully as 
competent to the work required. They 
do this, not merely from ostentation, 
but also from more reasonable motives ; 
either because they desire that those 
they employ should serve them cheer¬ 
fully, and be anxious to remain in their 
service; or because they do not like to 
drive a hard bargain with people whom 
they are in constant intercourse with; 
or because they dislike to have near 
their persons, and continually in their 
sight, people with the appearance and 
habits which are the usual accompani¬ 
ments of a mean remuneration. Simi¬ 
lar feelings operate in the minds of 
persons in business, with respect to 
their clerks and other employes. Li¬ 
berality, generosity, and the credit of 
the employer, are motives which, to 
whatever extent they operate, preclude 
taking the utmost advantage of compe¬ 
tition : and doubtless such motives 
might, and even now do, operate on 
employers of labour in all the great 
departments of industry; and most de¬ 
sirable is it that they should. But 
they can never raise the average wages 
of labour beyond the ratio of population 
to capital. By giving more to each 
person employed, they limit the power 
of giving employment to numbers; and 
however excellent their moral effect, 
they do little good economically, unless 
the pauperism of those who are shut 
out, leads indirectly to a readjustment 
by means of an increased restraint on 
population. 




PROFITS. 


245 


CHAPTER XV. 

OF PROFITS. 


§ 1. Having treated of tlie la¬ 
bourer’s share of the produce, we next 
proceed to the share of the capitalist; 
the profits of capital or stock ; the gains 
of the person who advances the ex¬ 
penses of production—who, from funds 
in his possession, pays the wages of 
the labourers, or supports them during 
the work; who supplies the requisite 
buildings, materials, and tools or ma¬ 
chinery; and to whom, by the usual 
terms of the contract, the produce be¬ 
longs, to be disposed of at his pleasure. 
After indemnifying him for his outlay, 
there commonly remains a surplus, 
which is his profit; the net income 
from his capital: the amount which 
he can afford to expend in necessaries 
or pleasures, or from which by further 
saving he can add to his wealth. 

As the wages of the labourer are the 
remuneration of labour, so the profits 
of the capitalist are properly, according 
to Mr. Senior’s well-chosen expression, 
the remuneration of abstinence. They 
are what he gains by forbearing to 
consume his capital for his own uses, 
and allowing it to be consumed by 
productive labourers for their uses. 
For this forbearance he requires a 
recompense. Very often in personal 
enjoyment he would be a gainer by 
squandering his capital, the capital 
amounting to more than the sum of the 
profits which it will yield during the 
years he can expect to live. But while 
he retains it undiminished, he has al¬ 
ways the power of consuming it if he 
wishes or needs; he can bestow it upon 
others at his death; and in the mean¬ 
time he derives from it an income, 
which he can without impoverishment 
apply to the satisfaction of his own 
wants or inclinations. 

Of the gains, however, which the 
possession of a capital enables a person 
to make, a part only is properly an 
equivalent for the use of the capital 
itself; namely, as much as a solvent 


person would be willing to pay for the 
loan of it. This, which as everybody 
knows is called interest, is all that a 
person is enabled to get by merely ab¬ 
staining from the immediate consump¬ 
tion of his capital, and allowing it to 
be used for productive purposes by 
others. The remuneration which is 
obtained in any country for mere ab¬ 
stinence, is measured by the current 
rate of interest on the best security; 
such security as precludes any appre¬ 
ciable chance of losing the principal. 
What a person expects to gain, who 
superintends the employment of his 
own capital, is always more, and gene¬ 
rally much more, than this. The rate 
of profit greatly exceeds the rate of in¬ 
terest. The surplus is partly compensa¬ 
tion for risk. By lending his capital, on 
unexceptionable security, he runs little 
or no risk. But if he embarks in busi¬ 
ness on his own account, he always 
exposes his capital to some, and in 
many cases to very great, danger of 
partial or total loss. For this danger 
he must be compensated, otherwise he 
will not incur it. He must likewise be 
remunerated for the devotion of his 
time and labour. The control of the 
operations of industry usually belongs 
to the person who supplies the whole 
or the greatest part of the funds by 
which they are carried on, and who, 
according to the ordinary arrangement, 
is either alone interested, or is the per¬ 
son most interested (at least directly), 
in the result. To exercise this control 
with efficiency, if the concern is large 
and complicated, requires great assi¬ 
duity, and often, no ordinary skill. This 
assiduity and skill must be remune¬ 
rated. 

The gross profits from capital, the 
gains returned to those who supply the 
funds for production, must suffice for 
these three purposes. They must 
afford a sufficient equivalent for absti¬ 
nence, indemnity for risk, and remu- 



246 BOOK II. CHAPTER XV. § 2. 


iteration for the labour and skill re¬ 
quired for superintendence. These 
different compensations may he either 
paid to the same, or to different per¬ 
sons. The capital, or some part of it, 
may he borrowed : may belong to some 
one who does not undertake the risks 
or the trouble of business. In that 
case, the lender, or owner, is the per¬ 
son who practises the abstinence ; and 
is remunerated for it by the interest 
paid to him, while the difference be¬ 
tween the interest and the gross profit 
remunerates the exertions and risks of 
the undertaker.* Sometimes, again, 
the capital, or a part of it, is supplied 
by what is called a sleeping partner ; 
who shares the risks of the employ¬ 
ment, but not the trouble, and who, in 
consideration of those risks, receives 
not a mere interest, but a stipulated 
share of the gross profits. Sometimes 
the capital is supplied and the risk 
incurred by one person, and the busi¬ 
ness carried on exclusively in his name, 
while the trouble of management is 
made over to another, who is engaged 
for that purpose at a fixed salary. 
Management, however, by hired ser¬ 
vants, who have no interest in the 
result but that of preserving their 
salaries, is proverbially inefficient, un¬ 
less they act under the inspecting eye, 
if not the controlling hand, of the per¬ 
son chiefly interested: and prudence 
almost always recommends giving to 
a manager not thus controlled, a re¬ 
muneration partly dependent on the 
profits; which virtually reduces the 
case to that of a sleeping partner. Or 
finally, the same person may own the 
capital, and conduct the business; 
adding, if he will and can, to the man¬ 
agement of his own capital, that of as 
much more as the owners may be will¬ 
ing to trust him with. But under 
any and all of these arrangements, the 
same three things require their remu¬ 
neration, and must obtain it from the 
gross profit: abstinence, risk, exertion. 
And the three parts into which profit 
may be considered as resolving itself, 

* It is to be regretted that this word, in 
this sense, is not tamiliar to an English ear. 
French political economists enjoy a great 
advantage in being able to speak currently 
oik's profits de 1'entrepreneur . 


may be described respectively as inte¬ 
rest, insurance, and wages of superin¬ 
tendence. 

§ 2. The lowest rate of profit which 
can permanently exist, is that which 
is barely adequate, at the given place 
and time, to afford an equivalent for 
the abstinence, risk, and exertion im¬ 
plied in the employment of capital. 
From the gross profit, has first to be 
deducted as much as will form a fund 
sufficient on the average to cover all 
losses incident to the employment. 
Next, it must afford such an equivalent 
to the owner of the capital for forbear¬ 
ing to consume it, as is then and 
there a sufficient motive to him to per¬ 
sist in his abstinence. How much 
will be required to form this equiva¬ 
lent, depends on the comparative value 
placed, in the given society, upon the 
present and the future: (in the words 
formerly used) on the strength of the 
effective desire of accumulation. Fur¬ 
ther, after covering ail losses, and re¬ 
munerating the owner for forbearing to 
consume, there must be something left 
to recompense the labour and skill of 
the person who devotes his time to the 
business. This recompense too must 
be sufficient to enable at least the 
owners of the larger capitals to receive 
for their trouble, or to pay to some 
manager for his, what to them or him 
will be a sufficient inducement for un¬ 
dergoing it. If the surplus is no more 
than this, none but large masses of 
capital will be employed productively ; 
and if it did not even amount to this, 
capital would be withdrawn from pro¬ 
duction, and unproductively consumed, 
until, by an indirect consequence of its 
diminished amount, to be explained 
hereafter, the rate of profit was raised. 

Such, then, is the minimum of 
profits : but that minimum is exceed¬ 
ingly variable, and at some times and 
places extremely low; on account of 
the great variableness of two out of 
its three elements. That the rate of 
necessary remuneration for abstinence, 
or in other words the effective desire 
of accumulation, differs widely in dif¬ 
ferent states of society and civilization, 
has been seen in a former chapter. 





PROFITS. 


There is a still wider difference in the 
element which consists in compensa¬ 
tion for risk. I am not now speaking 
of the differences in point of risk be¬ 
tween different employments of capital 
in the same society, but of the very 
different degrees of security of property 
in different states of society. AY here, 
as in many of the governments of 
Asia, property is in perpetual danger 
of spoliation from a tyrannical govern¬ 
ment, or from its rapacious and ill- 
controlled officers; where to possess or 
to be suspected of possessing wealth, is 
to be a mark not only for plunder, but 
perhaps for personal ill-treatment to 
extort the disclosure and surrender of 
hidden valuables ; or where, as in the 
European middle ages, the weakness 
of the government, even when not it¬ 
self inclined to oppress, leaves its sub¬ 
jects exposed without protection or 
redress to active spoliation, or auda¬ 
cious withholding of just rights, by any 
powerful individual; the rate of profit 
which persons of average dispositions 
will require, to make them forego the 
immediate enjoyment of what they 
happen to possess, for the purpose of 
exposing it and themselves to these 
perils, must be something very con¬ 
siderable. And these contingencies 
affect those who live on the mere inte¬ 
rest of their capital, in common with 
those who personally engage in pro¬ 
duction. In a generally secure state 
of society, the risks which may be 
attendant on the nature of particular 
employments seldom fall on the person 
who lends his capital, if he lends on 
good security ; but in a state of society 
like that of many parts of Asia, no 
security (except perhaps the actual 
pledge of gold or jewels) is good : and 
the mere possession of a hoard, when 
known or suspected, exposes it and the 
j)ossessor to risks, for which scarcely 
any profit he could expect to obtain 
would be an equivalent; so that there 
would be still less accumulation than 
there is, if a state of insecurity did not 
also multiply the occasions on which 
the possession of a treasure may be the 
means of saving life, or averting serious 
calamities. Those who lend, under 
these wretched governments, do it at 


247 

the utmost peril of never being paid. 
In most of the native states ot India, 
the lowest terms on which any one 
will lend money, even to the govern 
ment, are such, that if the interest is 
paid only for a few years, and the 
principal not at all, the lender is toler¬ 
ably well indemnified. If the accumu¬ 
lation of principal and compound inte¬ 
rest is ultimately compromised at a 
few shillings in the pound, he has 
generally made an advantageous bar¬ 
gain. 

§ 3. The remuneration of capital in 
different employments, much more than 
the remuneration of labour, varies ac¬ 
cording to the circumstances which 
render one employment more attrac¬ 
tive, or more repulsive, than another. 
The profits, for example, of retail 
trade, in proportion to the capital em¬ 
ployed, exceed those of wholesale 
dealers or manufacturers, for this rea¬ 
son among others, that there is less 
consideration attached to the employ¬ 
ment. The greatest, however, of these 
differences, is that caused by difference 
of risk. The profits of a gunpowder 
manufacturer must be considerably 
greater than the average, to make up 
for the peculiar risks to which he and 
his property are constantly exposed. 
When, however, as in the case of 
marine adventure, ihe peculiar risks 
are capable of being, and commonly 
are, commuted for a fixed payment, 
the premium of insurance takes its 
regular place among the charges of 
production; and the compensation 
which the owner of the ship or cargo 
receives for that payment, does not ap¬ 
pear in the estimate of his profits, but 
is included in the replacement of his 
capital. 

The portion, too, of the gross profit, 
which forms the remuneration for the 
labour and skill of the dealer or pro¬ 
ducer, is very different in different em¬ 
ployments. This is the explanation 
always given of the extraordinary rate 
of apothecaries’ profit; the greatest 
part, as Adam Smith observes, being 
frequently no more than the reasonable 
wages of professional attendance; for 
which, until a late alteration of the 



BOOK II. CHAPTER XV. § 4. 


248 

law, tlie apothecary could not demand 
any remuneration, except in the prices 
of his drugs. Some occupations require 
a considerable amount of scientific or 
technical education, and can only be 
carried on by persons who combine with 
that education a considerable capital. 
Such is the business of an engineer, 
both in the original sense of the term, 
a machine-maker, and in its popular 
or derivative sense, an undertaker of 
public works. These are always the 
most profitable employments. There 
are cases, again, in which a consider¬ 
able amount of labour and skill is re¬ 
quired to conduct a business necessarily 
of limited extent. In such cases a 
higher than common rate of profit is 
necessary to yield only the common 
rate of remuneration. “ In a small sea- 

{ )ort town,” says Adam Smith, “ a 
ittle grocer will make forty or fifty per 
cent upon a stock of a single hundred 
pounds, while a considerable wholesale 
merchant in the same place will scarce 
make eight or ten per cent upon a stock 
of ten thousand. Tlie trade of the 
grocer may be necessary for the con- 
veniency of the inhabitants, and the 
narrowness of the market may not 
admit the employment of a larger 
capital in the business. The man, 
however, must not only live by his 
trade, but live by it suitably to 
the qualifications which it requires. 
Besides possessing a little capital, he 
must be able to read, write, and ac¬ 
count, and must be a tolerable judge, 
too, of perhaps fifty or sixty different 
sorts of goods, their prices, qualities, 
and the markets where they are to 
be had cheapest. Thirty or forty 
pounds a year cannot be considered as 
too great a recompense for the labour 
of a person so accomplished. Deduct 
this from the seemingly great profits of 
his capital, and little more will remain, 
perhaps, than the ordinary profits of 
stock. The greater part of the apparent 
profit is, in this case, too, real wages.” 

All the natural monopolies (meaning 
thereby those which are created by 
circumstances, and not by law) which 
produce or aggravate the disparities in 
the remuneration of different kinds of 
labour, operate similarly between dif¬ 


ferent employments of capital. If a 
business can only be advantageously 
carried on by a large capital, this in 
most countries limits so narrowdy the 
class of persons wdro can enter into the 
employment, that they are enabled to 
keep their rate of profit above the 
general level. A trade may also, from 
the nature of the case, be confined to 
so few hands, that profits may admit 
of being kept up by a combination 
among the dealers. It is well known 
that even among so numerous a body 
as the London booksellers, this sort of 
combination long continued to exist. 
I have already mentioned the case of 
the gas and water companies. 

§ 4. After due allowance is made 
for these various causes of inequality, 
namely, differences in the risk or 
agreeableness of different employments, 
and natural or artificial monopolies; 
the rate of profit on capital in all em¬ 
ployments tends to an equality. Such 
is the proposition usually laid down by 
political economists, and under proper 
explanations it is true. 

I hat portion of profit which is 
properly interest, and which forms the 
real remuneration for abstinence, is 
strictly the same, at the same time and 
place, whatever be the employment. 
The rate of interest on equally good 
security, does not vary according to 
the destination of the principal, though 
it does vary from time to time very 
much, according to the circumstances 
of the market. There is no employ¬ 
ment in which, in the present state of 
industry, competition is so active and 
incessant as in the lending and borrow¬ 
ing of money. All persons in business 
are occasionally, and most of them 
constantly, borrowers: while all persons 
not in business, who possess monied 
property, are lenders. Between these 
two great bodies, there is a numerous, 
keen, and intelligent class of middle¬ 
men, composed of bankers, stockbrokers, 
discount brokers, and others, alive to 
the slightest breath of probable gain. 
The smallest circumstance, or the most 
transient impression on the public 
mind, which tends to an increase or 
diminution of the demand for loans 






PROFITS. 249 


either at the time or prospectively, 
operates immediately on the rate of 
interest: and circumstances in the 
general state of trade, really tending 
to cause this difference of demand, are 
continually occurring, sometimes to 
such an extent, that the rate of inte¬ 
rest on the best mercantile bills has 
been known to vary in little more than 
a year (even without the occurrence of 
the great derangement called a com¬ 
mercial crisis) from four or less, to eight 
or nine per cent. But, at the same 
time and place, the rate of interest is 
the same, to all who can give equally 
good security. The market rate of 
interest is at all times a known and 
definite thing. 

It is far otherwise with gross profit; 
which, though (as will presently be seen) 
it does not vary much from employ¬ 
ment to emplojmient, varies very greatly 
from individual to individual, and can 
scarcely be in any two cases the same. 
It depends on the knowledge, talents, 
economy, and energy of the capitalist 
himself, or of the agents whom he em¬ 
ploys ; on the accidents of personal con¬ 
nexion ; and even on chance. Hardly 
any two dealers in the same trade, 
even if their commodities are equally 
good and equally cheap, carry on their 
business at the same expense, or turn 
over their capital in the same time. 
That equal capitals give equal profits, 
as a general maxim of trade, would be 
as false as that equal age or size gives 
equal bodily strength, or that equal 
reading or experience gives equal 
knowledge. The effect depends as 
much upon twenty other things, as 
upon the single cause specified. 

But though profits thus vary, the 
parity, on the whole, of different modes • 
of employing capital (in the absence 
of any natural or artificial monopoly) 
is, in a certain, and a very important 
sense, maintained. On an average 
(whatever may be the occasional 
fluctuations) the various employments 
of capital are on such a footing, as to 
hold out, not equal profits, but equal 
expectations of profit, to persons of 
average abilities and advantages. By 
equal, I mean after making compensa¬ 
tion for any inferiority in the agree¬ 


ableness or safety of an employment. 
If the case w r ere not so ; if there w T ere 
evidently, and to common experience, 
more favourable chances of pecuniary 
success in one business than in others, 
more persons would engage their capi¬ 
tal in the business, or would bring up 
their sons to it; which in fact always 
happens when a business, like that of 
an engineer at present, or like any 
newly established and prosperous manu¬ 
facture, is seen to be a growing and 
thriving one. If, on the contrary, a 
business is not considered thriving ; if 
the chances of profit in it are thought 
to be inferior to those in other employ¬ 
ments ; capital gradually leaves it, or 
at least new capital is not attracted to 
it; and by this change in the distribu¬ 
tion of capital between the less profit¬ 
able and the more profitable employ¬ 
ments, a sort of balance is restored. 
The expectations of profit, therefore, in 
different employments, cannot long con¬ 
tinue very different: they tend to a 
common average, though they are 
generally oscillating from one side to 
the other side of the medium. 

This equalizing process, commonly 
described as the transfer of capital from 
one employment to another, is not 
necessarily the onerous, slow, and 
almost impracticable operation which 
it is very often represented to be. In 
the first place, it does not always im¬ 
ply the actual removal of capital 
already embarked in an employment. 
In a rapidly progressive state of capital, 
the adjustment often takes place by 
means of the new accumulations of each 
year, which direct themselves in prefer¬ 
ence towards the more thriving trades. 
Even when a real transfer of capital is 
necessary, it is by no means implied 
that any of those who are engaged in 
the unprofitable employment, relinquish 
business and break up their establish¬ 
ments. The numerous and multifarious 
channels of credit, through which, in 
commercial nations, unemployed capital 
diffuses itself over the field of employ¬ 
ment, flowing over in greater abund¬ 
ance to the lower levels, are the means 
by which the equalization is accom¬ 
plished. The process consists in a 
limitation by one class of dealers or 





BOOK II. CHAPTER XV. § 4. 


250 

producers, and an extension by the 
other, of that portion of their business 
which is carried on with borrowed 
capital. There is scarcely any dealer 
or producer on a considerable scale, 
who coniines his business to what can 
be carried on by his own funds. When 
trade is good, he not only uses to the 
utmost Iris own capital, but employs, 
in addition, much of the credit which 
that capital obtains for him. When, 
either from over-supply or from some 
slackening in the demand for his com¬ 
modity, he finds that it sells more 
slowly or obtains a lower price, he con¬ 
tracts his operations, and does not 
apply to bankers or other . money 
dealers for a renewal of their advances 
to the same extent as before. A busi¬ 
ness which is increasing holds out, on 
the contrary, a prospect of profitable 
employment for a larger amount of this 
floating capital than previously, and 
those engaged in it become applicants 
to the money dealers for larger ad¬ 
vances, which, from their improving 
circumstances, they have no difficulty 
in obtaining. A different distribution 
of floating capital between two em¬ 
ployments has as much effect in re¬ 
storing their profits to an equilibrium, 
as if the owners of an equal amount of 
capital were to abandon the one trade 
and carry their capital into the other. 
This easy, and as it were spontaneous, 
method of accommodating production 
to demand, is quite sufficient to correct 
any inequalities arising from the fluc¬ 
tuations of trade, or other causes of 
ordinary occurrence. In the case of 
a r altogether declining trade, in which 
i, is necessary that the production 
should be, not occasionally varied, but 
greatly and permanently diminished, 
or perhaps stopped altogether, the pro 
cess of extricating the capital is, no 
doubt, tardy and difficult, and almost 
always attended with considerable 
loss; much of the capital fixed in ma¬ 
chinery, buildings, permanent works, 
&c. being either not applicable to any 
other purpose, or only applicable after 
expensive alterations; and time being 
seldom given for effecting the change 
in the mode in which it would be 
effected with least loss, namely, by 


not replacing the fixed capital as it 
wears out. There is besides, in totally 
changing the destination of a capital, 
so great a sacrifice of established con¬ 
nexion, and of acquired skill and ex¬ 
perience, that people are always very 
slow in resolving upon it, and hardly 
ever do so until long alter a change of 
fortune has become hopeless. 'ihese, 
however, are distinctly exceptional 
cases, and even in ihese the equaliza¬ 
tion is at last effected. It may also 
happen that the return to equilibrium 
is considerably protracted, when, before 
one inequality has been corrected, 
another cause of inequality arises; 
which is said to have been continually 
the case during a long series of years, 
with the production of cotton in the 
Southern States of Xorth America; the 
commodity having been upheld at 
what was virtually a monopoly price, 
because the increase of demand, from 
successive improvements in the manu¬ 
facture, went on with a rapidity so 
much beyond expectation, that for many 
years tbe supply never completely 
overtook it. But it is not often that a 
succession of disturbing causes, all 
acting in the same direction, are known 
to follow one another with hardly any 
interval. V here there is no monopoly, 
the profits of a trade are likely to range 
sometimes above and sometimes below 
the general level, but tending always to 
return to it; like the oscillations of the 
pendulum. 

In general, then, although profits are 
very different to different individuals, 
and to the same individual in different 
years, there cannot be much diversity 
at the same time and place in the 
average profits of different employ- 
.ments, (other than the standing differ¬ 
ences necessary to compensate for 
difference of attractiveness), except for 
short periods, or when some great per¬ 
manent revulsion has overtaken a par¬ 
ticular trade. If any popular impres¬ 
sion exists that some trades are more 
profitable than others, independently of 
monopoly, or of such rare accidents as 
have been noticed in regard to the 
cotton trade, the impression is in all 
probability fallacious, since if it were 
shared by those who have greatest 



PEOFITS. 


means of knowledge and motives to 
accurate examination, there would take 
place such an influx of capital as would 
soon lower the profits to the common 
level. It is true that, to persons with 
the same amount of original means, 
there is more chance of making a large 
fortune in some employments than in 
others. But it would be found that in 
those same employments bankruptcies 
also are more frequent, and that the 
chance of greater success is balanced 
by a greater probability of complete 
failure. Very often it is more than 
balanced: for, as was remarked in 
another case, the chance of great prizes 
operates with a greater degree of 
strength than arithmetic will warrant, 
in attracting competitors ; and 1 doubt 
not that the average gains, in a trade 
in which large fortunes may be made, 
are lower than in those in which gains 
are slow, thougli comparatively sure, 
and in which nothing is to be ulti¬ 
mately hoped for beyond a competency. 
The timber trade of Canada is one ex¬ 
ample of an employment of capital, 
partaking so much of the nature of a 
lottery, as to make it an accredited 
opinion that, taking the adventurers in 
the aggregate, there is more money 
lost by the trade than gained by it; in 
other words, that the average rate of 
profit is less than nothing. In such 
points as this, much depends on the 
characters of nations, according as they 
partake more or less of the adventur¬ 
ous, or, as it is called when the inten¬ 
tion is to blame it, the gambling spirit. 
This spirit is much stronger in the 
United States than in Great Britain ; 
and in Great Britain than in any 
country of the Continent. In some 
Continental countries the tendency is 
so much the reverse, that safe and quiet 
employments probably yield a less 
average profit to the capital engaged 
in them, than those which offer greater 
gains at the price of greater hazards. 

It must not however be forgotten, 
that even in the countries of most 
active competition, custom also has a 
considerable share in determining the 
profits of trade. There is sometimes 
an idea afloat as to what the profit of 
an employment should be, which though 


251 

not adhered to by all the dealers, nor 
perhaps rigidly by any, still exercises a 
certain influence over their operations. 
There has been in England a kind of 
notion, how widely prevailing I know 
not, that fifty per cent is a proper and 
suitable rate of profit in retail trans¬ 
actions : understand, not fifty per cent 
on the whole capital, hut an advance 
of fifty per cent on the wholesale 
prices ; from which have to be defrayed 
bad debts, shop rent, the pay of clerks, 
shopmen, and agents of all descrip¬ 
tions, in short all the expenses of the 
retail business. If this custom were 
universal, and strictly adhered to, com¬ 
petition indeed would still operate, but 
the consumer would not derive any 
benefit from it, at least as to price ; the 
way in which it would diminish the ad¬ 
vantages of those engaged in retail 
trade, would be by a greater subdivision 
of the business. In some parts of the 
Continent the standard is as high as a 
hundred per cent. The increase of 
competition however, in England at 
least, is rapidly tending to break down 
customs of this description. In the 
majority of trades, (at least in the great 
emporia of trade,) there are numerous 
dealers whose motto is “small gains 
and frequent’’—a great business at low 
prices, rather than high prices and few 
transactions; and by turning over their 
capital more rapidly, and adding to 
it by borrowed capital when needed, 
the dealers often obtain individually 
higher profits ; though they necessarily 
lower the profits of those among their 
competitors, who do not adopt the 
same principle. Nevertheless, com¬ 
petition, as remarked* in a previous 
chapter, has, as yet, but a limited 
dominion over retail prices; and con¬ 
sequently the share of the whole pro¬ 
duce of land and labour which is ab¬ 
sorbed in the remuneration of mere 
distributors, continues exorbitant; and 
there is no function in the economy of 
society which supports a number of 
persons so disproportionate to the 
amount of work to be performed. 

§ 5. The preceding remarks have, 
I hope, sufficiently elucidated what is 
* Vide supra, book ii. ch. iv. § 3. 





252 BOOK II. CHAPTER XV. § 6. 


meant by the common phrase, “ the 
ordinary rate of profitand the sense 
in which, and the limitations under 
which, this ordinary rate has a real 
existence. It now remains to con¬ 
sider, what causes determine its 
amount. 

To popular apprehension it seems as 
if the profits of business depended upon 
prices. A producer or dealer seems to 
obtain his profits by selling his com¬ 
modity for more than it cost him. 
Profit altogether, people are apt to 
think, is a consequence of purchase and 
sale. It is only (they suppose) because 
there are purchasers for a commodity, 
that the producer of it is able to make 
any profit. Demand — customers — a 
market for the commodity, are the 
cause of the gains of capitalists. It is 
by the sale of their goods, that they 
replace their capital, and add to its 
amount. 

This, however, is looking only at the 
outside surface of the economical ma¬ 
chinery of society. In no case, we find, 
is the mere money which passes from 
one person to another, the fundamental 
matter in any economical phenomenon. 
If we look more narrowly into the 
operations of the producer, we shall 
perceive that the money he obtains for 
his commodity is not the cause of his 
having a profit, but only the mode in 
which his profit is paid to him. 

The cause of profit is, that labour 
produces more than is required for its 
support. The reason why agricultural 
capital yields a profit, is because 
human beings can grew more food, 
than is necessary to feed them while it 
is being grown, including the time oc¬ 
cupied in constructing the tools, and 
making all other needful preparations; 
from which it is a consequence, that if 
a capitalist undertakes to feed the la¬ 
bourers on condition of receiving the 
produce, he has some of it remaining 
for himself after replacing his advances. 
To vary the form of the theorem : the 
reason why capital yields a profit, is 
because food, clothing, materials and 
tools, last longer than the time, which 
was required to produce them ; so that 
if a capitalist supplies a party of la¬ 
bourers with these things, on con¬ 


dition of receiving all they produce, 
they will, in addition to reproducing 
their own necessaries and instruments, 
have a portion of their time remaining, 
to work for the capitalist. We thus 
see that profit arises, not from the in¬ 
cident of exchange, but from the pro¬ 
ductive power of labour; and the gene¬ 
ral profit of the country is always what 
the productive power of labour makes 
it, whether any exchange takes place 
or not. If there were no division of 
employments, there would be no buy¬ 
ing or selling, but there would still be 
profit. If the labourers of the country 
collectively produce twenty per cent 
more than their wages, profits will be 
twenty per cent, whatever prices 
may or may not be. The accidents of 
price may for a time make one set of 
producers get more than twenty per 
cent, and another less, the one commo¬ 
dity being rated above its natural value 
in relation to other commodities, and 
the other below, until prices have again 
adjusted themselves; but there will 
always be just twenty per cent divided 
among them all. 

I proceed, in expansion of the consi¬ 
derations thus briefly indicated, to ex¬ 
hibit more minutely the mode in which 
the rate of profit is determined. 

§ 3. I assume, throughout, the 
state of things, which, where the la¬ 
bourers and capitalists are separate 
classes, prevails, with few exceptions, 
universally; namely, that the capitalist 
advances the whole expenses, including 
the entire remuneration of the labourer. 
That he should do so, is not a matter 
of inherent necessity; the labourer 
might wait until the production is 
complete, for all that part of his wages 
which exceeds mere necessaries; and 
even for the whole, if he has funds in 
hand, sufficient for his temporary sup¬ 
port. But in the latter case, the la¬ 
bourer is to that extent really a capi¬ 
talist, investing capital in the concern, 
by supplying a port ion of the funds neces¬ 
sary for carrying, it on ; and even in the 
former case he may be looked upon in 
the same light, since, contributing his 
labour at less than the market price, 
he may be regarded as lending the dif« 



PROFITS. 253 


^erence to his employer, and receiving 
it back with interest (on whatever 
principle computed) from the proceeds 
of the enterprise. 

The capitalist, then, may he assumed 
to make all the advances, and receive 
all the produce. His profit consists of 
the excess of the produce above the 
advances; his rate of profit is the ratio 
which that excess bears to the amount 
advanced. But what do the advances 
consist of? 

It is, for the present, necessary to 
suppose, that the capitalist does not 
pay any rent; has not to purchase the 
use of any appropriated natural agent. 
This indeed is scarcely ever the exact 
truth. The agricultural capitalist, 
except 'when he is the owner of the 
soil he cultivates, always, or almost 
always, pays rent: and even in manu¬ 
factures, (not to mention ground-rent,) 
the materials of the manufacture have 
generally paid rent, in some stage of 
their production. The nature of rent 
however, we have not yet taken into 
consideration; and it will hereafter 
appear, that no practical error, on the 
question we are now examining, is 
produced by disregarding it. 

If, then, leaving rent out of the 
question, we inquire in what it is that 
the advances of the capitalists, for pur¬ 
poses of production, consists, we shall 
find that they consist of wages of 
labour. 

A large portion of the expenditure of 
every capitalist consists in the direct 
payment of wages. What does not 
consist of this, is composed of materials 
and implements, including buildings. 
But materials and implements are pro¬ 
duced by labour; and as our supposed 
capitalist is not meant to represent 
a single employment, but to be a type 
of the productive industry of the whole 
country, we may suppose that he 
makes his own tools, and raises his 
own materials. He does this by means 
of previous advances, which, again, 
consist wholly of wages. If we sup¬ 
pose him to buy the materials and 
tools instead of producing them, the 
case is not altered : he then repays to 
a previous producer the wages which 
that previous producer has paid. It is 


true, he repays it to him with a profit; 
and if he had produced the things 
himself, he himself must have had that 
profit, on this part of his outlay, as 
well as on every other part. The fact, 
however, remains, that in the 'whole 
process of production, beginning with 
the materials and tools, and ending 
with the finished product, all the ad¬ 
vances have consisted of nothing but 
wages ; except that certain of the capi¬ 
talists concerned have, for the sake of 
general convenience, had their share 
of profit paid to them before the opera¬ 
tion was completed. Whatever, of the 
ultimate product, is not profit, is re¬ 
payment of wages. 

§ 7. It thus appears that the two 
elements on which, and which alone, 
the gains of the capitalists depend, are, ' 
first, the magnitude of the produce, in 
other words, the productive power of 
labour; and secondly, the proportion of 
that produce obtained by the labourers 
themselves ; the ratio, which the remu¬ 
neration of the labourers bears to the 
amount they produce. These two things 
form the data for determining the 
gross amount divided as profit among 
all the capitalists of the country; but 
the rate of profit, the percentage on the 
capital, depends only on the second of 
the two elements, the labourer’s pro¬ 
portional share, and not on the amount 
to be shared. If the produce of labour 
were doubled, and the labourers ob¬ 
tained the same proportional share as 
before, that is, if their remuneration 
was also doubled, the capitalists, it 
is true, would gain twice as much; 
but as they would also have had to ad¬ 
vance twice as much, the rate of their 
profit would be only the same as be¬ 
fore. 

We thus arrive at the conclusion of 
Ricardo and others, that the rate of 
profits depends on wages; rising as 
wages fall, and falling as wages rise. 
In adopting, however, this doctrine, 

I must insist upon making a most ne¬ 
cessary alteration in its wording. In¬ 
stead of saying that profits depend on 
wages, let us say (what Ricardo really 
meant) that they depend on the cost of 
labour. 



254 BOOK II. CHAPTER XV. § 7. 


Wages; and the cost of labour; what 
labour brings in to the labourer, and 
what it costs to the capitalist; are 
ideas quite distinct, and which it is of 
the utmost importance to keep so. For 
this purpose it is essential not to desig¬ 
nate them, as is almost always done, by 
the same name. Wages, in public dis¬ 
cussions, both oral and printed, being 
looked upon from the point of view of 
the payers, much oftener than from that 
of the receivers, nothing is more com¬ 
mon than to say that wages are high 
or low, meaning only that the cost of 
labour is high or low. The reverse of 
this would be oftener the truth: the 
cost of labour is frequently at its highest 
where wages are lowest. This may 
arise from two causes. In the first 
place, the labour, though cheap, may be 
inefficient. In no European country 
are wages so low as they are (or at 
least were) in Ireland; the remunera¬ 
tion of an agricultural labourer in the 
west of Ireland not being more than 
half the wages of even the lowest-paid 
Englishman, the Dorsetshire labourer. 
But if, from inferior skill and industry, 
two days’ labour of an Irishman accom¬ 
plished no more work than an English 
labourer performed in one, the Irish¬ 
man’s labour cost as much as the 
Englishman’s, though it brought in so 
much less to himself. The capitalist’s 
profit is determined by the former of 
these two things, not by the latter. 
That a difference to this extent really 
existed in the efficiency of the labour, 
is proved not only by abundant testi¬ 
mony, but by the fact, that notwith¬ 
standing the lowness of wages, profits 
of capital are not understood to have 
been higher in Ireland than in Eng¬ 
land. % 

The other cause which renders wages, 
and the cost of labour, no real criteria 
of one another, is the varying costliness 
of the articles which the labourer con¬ 
sumes. If these are cheap, wages, in 
the sense which is of importance to the 
labourer, maybe high, and yet the cost 
of labour may be low; if dear, the la¬ 
bourer may be wretchedly off, though 
his labour may cost much to the capi¬ 
talist. This last is the condition of a 
country over-peopled in relation to its 


land; in which, food being dear, the 
poorness of the labourer’s real reward 
does not prevent labour from costing 
much to the purchaser, and low wages 
and low profits co-exist. The opposite 
case is exemplified in the United States 
of America. The labourer there enjoys 
a greater abundance of comforts than 
in any other country of the world, ex¬ 
cept some of the newest colonies ; but, 
owing to the cheap price at which 
these comforts can be obtained (com¬ 
bined with the great efficiency of the 
labour,) the cost of labour is at least 
not higher, nor the rate of profit lower, 
than in Europe. 

The cost of labour, then, is, in the 
language of mathematics, a function of 
three variables : the efficiency of la¬ 
bour ; the wages of labour (meaning 
thereby the real reward of the labourer); 
and the greater or less cost at which 
the articles composing that real reward 
can be produced or procured. It is 
plain that the cost of labour to the 
capitalist must be influenced by each of 
these three circumstances, and by no 
others. These, therefore, are also the 
circumstances which determine the rate 
of profit; and it cannot be in any way 
affected except through one or other of 
them. If labour generally became more 
efficient, without being more highly re¬ 
warded ; if, without its becoming less 
efficient, its remuneration fell, no in¬ 
crease taking place in the cost of the 
articles composing that remuneration ; 
or if those articles became less costly, 
without the labourer’s obtaining more 
of them; in any one of these three 
cases, profits would rise. If, on the 
contrary, labour became less efficient 
(as it might do from diminished bodily 
vigour in the people, destruction of fixed 
capital, or deteriorated education); or 
if the.labourer obtained a higher remu¬ 
neration, without any increased cheap¬ 
ness in the things composing it; or if, 
without his obtaining more, that which 
he did obtain became more costly; pro¬ 
fits, in all these cases, would suffer a 
diminution. And there is no other 
combination of circumstances, in which 
the general rate of profit of a country, 
in all employments indifferently, can 
either fall or rise. 




RENT. 


The evidence of these propositions 
can only he stated generally, though, 
it is hoped, conclusively, in this stage 
of our subject. It will come out in 
greater fulness and force when, having 
taken into consideration the theory of 
Value and Price, we shall be enabled 
to exhibit the law of profits in the con¬ 
crete—in the complex entanglement 


255 

of circumstances in which it actually 
works. This can only be done in the 
ensuing Book. One topic still remains 
to be discussed in the present one, so 
far as it admits of being treated inde¬ 
pendently of considerations of Value; 
the subject of Rent ;• to which we now 
proceed. 


CHAPTER XVI. 


OF RENT. 


§ 1. The requisites of production being 
labour, capital, and natural agents; 
the only person, besides the labourer 
and the capitalist, whose consent is 
necessary to production, and who can 
claim a share of the produce as the 
price of that consent, is the person who, 
by the arrangements of society, pos¬ 
sesses exclusive power over some na¬ 
tural agent. The land is the principal 
of the natural agents which are capable 
of being appropriated, and the consi¬ 
deration paid for its use is called rent. 
Landed proprietors are the only class, 
of any numbers or importance, who have 
a claim to a share in the distribution 
of the produce, through their ownership 
of something which neither they nor 
any one else have produced. If there 
be any other cases of a similar nature, 
they will be easily understood, when 
the nature and laws of rent are com¬ 
prehended. 

It is at once evident, that rent is the 
effect of a monopoly ; though the mono¬ 
poly is a natural one, which may be 
regulated, which may even be held as 
a trust for the community generally, 
but which cannot be prevented front 
existing. The reason why landowners 
are able to require rent for their land, 
is that it is a commodity which many 
want, and which no one can obtain 
but front them. If all the land of the 
country belonged to one person, he 
could fix the rent at his pleasure. The 
whole people would be dependent on 
his will for the necessaries of life, and 


he might make what conditions he 
chose. This is the actual state of things 
in those Oriental kingdoms in which 
the land is considered the property of 
the state. Rent is then confounded 
with taxation, and the despot may exact 
the utmost which the unfortunate cul¬ 
tivators have to give. Indeed, the ex¬ 
clusive possessor of the land of a country 
could not well be other than despot of 
it. The effect, would be much the same 
if the land belonged to so few people 
that they could, and did, act together 
as one man, and fix the rent by agree¬ 
ment among themselves. This case, 
however, is nowhere known to exist: 
and the only remaining supposition is 
that of free competition; the land- 
owners being supposed to be, as in fact 
they are, too numerous to combine. 

§ 2. A thing which is limited in 
quantity, even though its possessors do 
not act in concert, is still a monopo¬ 
lized article. But even when monopo¬ 
lized, a thing which is the gift of 
nature, and requires no labour or out¬ 
lay as the condition of its existence, 
will, if there be competition among the 
holders of it, command a price, only if 
it exists in less quantity than the de¬ 
mand. If the whole land of a country 
were required for cultivation, all of it 
might yield a rent. But in no country 
of any extent do the wants of the 
population require that all the land, 
which is capable of cultivation, should 
be cultivated. The food and other 






256 BOOK II. CHAPTER XVI. § 2. 


agricultural produce which the people 
need, and which they are willing and 
able to pay for at a price -which re¬ 
munerates the grower, may always be 
obtained without cultivating all the 
land; sometimes without cultivating 
more than a small part of it; the 
lands most easily cultivated being pre¬ 
ferred in a very early stage of society, 
the more fertile, or those in the more 
convenient situations, in a more ad¬ 
vanced state. There is always, there¬ 
fore, some land which cannot, in exist¬ 
ing circumstances, pay any rent; and 
no land ever pays rent, unless, in point 
of fertility or situation, it belongs to 
those superior kinds which exist in 
less quantity than the demand—which 
cannot be made to yield all the pro¬ 
duce required for the community, un¬ 
less on terms still less advantageous 
than the resort to less favoured soils. 

There is land, such as the deserts of 
Arabia, which will yield nothing to any 
amount of labour; and there is land, 
like some of our hard sandy heaths, 
which would produce something, but, in 
the present state of the soil, not enough 
to defray the expenses of production. 
Such lands, unless by some application 
of chemistry to agriculture still remain¬ 
ing to be invented, cannot be cultivated 
for profit, unless some one actually 
creates a soil, by spreading new in¬ 
gredients over the surface, or mixing 
them wdth the existing materials. If 
ingredients fitted for this purpose exist 
in the subsoil, or close at hand, the 
improvement even of the most unpromis¬ 
ing spots may answer as a speculation : 
but if those ingredients are costly, and 
must be brought from a distance, it 
will seldom answer to do this for the 
sake of profit, though the “ magic of 
property ” will sometimes effect it. 
Land which cannot possibly yield a 
profit, is sometimes cultivated at a loss, 
the cultivators having their wants 
partially supplied from other sources ; 
as in the case of paupers, and some 
monasteries or charitable institutions, 
among which may be reckoned the 
Poor Colonies of Belgium. The worst 
land which can be cultivated as a 
means of subsistence, is that which 
will just replace the seed, and the food 


of the labourers employed on it, 
together with what JDr. Chalmers 
calls their secondaries; that is, the 
labourers required for supplying them 
with tools, and with the remaining 
necessaries of life. Whether any given 
land is capable of doing more than this, 
is not a question of political economy, 
but of physical fact. The supposition 
leaves nothing for profits, nor anything 
for the labourers except necessaries: the 
land, therefore, can only be cultivated 
by the labourers themselves, or else 
at a pecuniary loss : and a fortiori , 
cannot in any contingency afford a 
rent. The worst land which can be 
cultivated as an investment for capital, 
is that which, after replacing the seed, 
not only feeds the agricultural labourers 
and their secondaries, but affords them 
the current rate of -wages, which may 
extend to much more than mere neces¬ 
saries ; and leaves for those w T ho have 
advanced the wages of these two classes 
of labourers, a surplus equal to the 
profit they could have expected from 
any other employment of their capital. 
Whether any given land can do more 
than this, is not merely a physical 
question, but depends partly on the 
market value of agricultural produce. 
What the land can do for the labourers 
and for the capitalist, beyond feeding 
all w r hom it directly or indirectly em¬ 
ploys, of course depends upon what the 
remainder of the produce can be sold 
for. The higher the market value of 
produce, the lower are the soils to 
which cultivation can descend, con¬ 
sistently with affording to the capital 
employed, the ordinary rate of profit. 

As, however, differences of fertility 
slide into one another by insensible 
gradationsand differences of accessi¬ 
bility, that is, of distance from markets, 
do the same ; and since there is land 
so barren that it could not pay for its 
cultivation at any price ; it is evident 
that, whatever the price may be, there 
must in any extensive region be some 
land which at that price will ju6t pay 
the wages of the cultivators, and yield 
to the capital employed the ordinary 
profit, and no more. Until, therefore, 
the price rises higher, or until some 
improvement raises that particular 



KENT. 


257 


land to a higher place in the scale of 
fertility, it cannot pay any rent. It is 
evident, however, that the community 
needs the produce of this quality of 
land: since if the lands more fertile or 
better situated than it, could have 
sufficed to supply the wants of society, 
the price would not have risen so high 
as to render its cultivation profitable. 
This land, therefore, will be cultivated ; 
and we may lay it down as a principle, 
that so long as any of the land of a 
country which is fit for cultivation, and 
not withheld from it by legal or other 
factitious obstacles, is not cultivated, the 
worst land in actual cultivation (in 
point of fertility and situation together) 
pays no rent. 

§ 3. If, then, of the land in culti¬ 
vation, the part which yields least re¬ 
turn to the labour and capital employed 
on it gives only the ordinary profit of 
capital, without leaving anything for 
rent; a standard is afforded for esti¬ 
mating the amount of rent which will 
be yielded by all other land. Any 
land yields just as much more than 
the ordinary profits of stock, as it 
yields more than what is returned by 
the worst land in cultivation. The 
surplus is what the farmer can aflord 
to pay as rent to the landlord; axd 
since, if he did not so pay it, he would 
receive more than the ordinary rate 
of profit, the competition of other 
capitalists, that competition which 
equalizes the profits of different capi¬ 
tals, will enable the landlord to appro¬ 
priate it. The rent, therefore, which 
any land will yield, is the excess of its 
produce, beyond what would be re¬ 
turned to the same capital if employed 
on the worst land in cultivation. This 
is not, and never was pretended to be, 
the limit of metayer rents, or of cottier 
rents ; but it is the limit of farmers’ 
rents. No land rented to a capitalist 
farmer will permanently yield more 
than this ; and when it yields less, it 
is because the landlord foregoes a part 
of what, if he chose, he could obtain. 

This is the theory of rent, first pro¬ 
pounded at the end of the last century 
by Dr. Anderson, and which, neglected 
at the time, was almost simultaneously 

P.E. 


rediscovered, twenty years later, by 
Sir Edward West, Mr. Malthus, and 
Mr. Kicardo. It is one of the cardinal 
doctrines of political economy; and 
until it was understood, no consistent 
explanation could be given of many of 
the more complicated industrial pheno¬ 
mena. The evidence of its truth will 
be manifested with a great increase of 
clearness, when we come to trace the 
laws of the phenomena of Value and 
Price. Until that is done, it is not 
possible'to free the doctrine from every 
difficulty which may present itself, nor 
perhaps to convey, to those previously 
unacquainted with the subject, more 
than a general apprehension of the 
reasoning by which the theorem is 
arrived at. Some, however, of the ob¬ 
jections commonly made to it, admit 
of a complete answer even in the pre¬ 
sent stage of our inquiries. 

It has been denied that there can be 
any land in cultivation which pays no 
rent; because landlords (it is con¬ 
tended) would not allow their land to 
be occupied without payment. Those 
who lay any stress on this as an objec¬ 
tion, must think that land of the 
quality which can but just pay for its 
cultivation, lies together in large 
masses, detached from any land of 
better quality. If an estate consisted 
wholly of this land, or of this and still 
worse, it is likely enough that the 
owner would not give the use of it for 
nothing ; he would probably (if a rich 
man) prefer keeping it for other pur¬ 
poses, as for exercise, or ornament, or 
perhaps as a game preserve. No 
farmer could afford to offer him any¬ 
thing for it, for purposes of culture; 
though something would probably be 
obtained for the use of its natural pas¬ 
ture, or other spontaneous produce. 
Even such land, however, would not 
necessarily remain uncultivated. It 
might be farmed by the proprietor ; no 
unfrequent case even in England. Por¬ 
tions of it might be granted as tem¬ 
porary allotments to labouring families, 
either from philanthropic motives, or 
to save the poor-rate; or occupation 
might be allowed to squatters, free of 
rent, in the libpe that their labour 
might give it value at some future 

b 



BOOK II. CHAPTER XVI. § 4. 


258 

period. Both these cases are of quite 
ordinary occurrence. So that even if an 
estate were wholly composed of the worst 
land capable of profitable cultivation, it 
would not necessarily lie uncultivated 
because it could pay no rent. Inferior 
land, however, does not usually occupy, 
without interruption, many square 
miles of ground; it is dispersed here 
and there, with patches of better land 
intermixed, and the same person who 
rents the better land, obtains along 
with it the inferior soils which alter¬ 
nate with it. He pays a rent, nomi¬ 
nally for the whole farm, but calculated 
on the produce of those pai’ts alone 
(however small a portion of the whole) 
which are capable of returning more 
than the common rate of profit. It is 
thus scientifically true, that the re¬ 
maining parts pay no rent. 

§ 4. Let us, however, suppose that 
there were a validity in this objection, 
which can by no means be conceded to 
it; that when the demand of the com¬ 
munity had forced up food to such a 
price as would remunerate the expense 
of producing it from a certain quality 
of soil, it happened nevertheless that 
all the soil of that quality was with¬ 
held from cultivation, by the obstinacy 
of the owners in demanding a rent for 
it, not nominal, nor trifling, but suffi¬ 
ciently onerous to be a material item 
in the calculations of a farmer. What 
would then happen ? Merely that the 
increase of produce, which the wants 
of society required, would for the time 
be obtained wholly (as it always is par¬ 
tially), not by an extension of cultiva¬ 
tion, but by an increased application 
of labour and capital to land already 
cultivated. 

Now we have already seen that this 
increased application of capital, other 
things being unaltered, is always at¬ 
tended with a smaller proportional re¬ 
turn. We are not to suppose some new 
agricultural invention made precisely 
at this juncture; nor a sudden exten¬ 
sion of agricultural skill and knowledge, 
bringing into more general practice, 
just then, inventions already in partial 
use. We are to suppose no change, 
except a demand for more corn, and a 


consequent rise of its price. The rise 
of price enables measures to be taken 
for increasing the produce, which could 
not have been taken with profit at the 
previous price. The farmer uses more 
expensive manures; or manures land 
which he formerly left to nature; or 
procures lime or marl from a distance, 
as a dressing for the soil; or pulverizes 
or weeds it more thoroughly; or drains, 
irrigates, or subsoils portions of it, 
wdiich at former prices would not have 
paid the cost of the operation; and so 
forth. These things, or some of them, 
are done, when, more food being wanted, 
cultivation has no means of expanding 
itself upon new lands. And when the 
impulse is given to extract an increased 
amount of produce from the soil, the 
farmer or improver will only consider 
whether the outlay he makes for the 
purpose will be returned to him with 
the ordinary profit, and not whether 
any surplus will remain for rent. Even, 
therefore, if it were the fact, that there 
is never any land taken into cultivation, 
for which rent, and that too of an 
amount worth taking into considera¬ 
tion, was not paid; it would be true, 
nevertheless, that there is always some 
agricultural capital which pays no 
rent, because it returns nothing beyond 
the ordinary rate of profit: this capital 
being the portion of capital last applied 
—that to which the last addition to the 
produce was due ; or (to express the es¬ 
sentials of the case in one phrase), that 
which is applied in the least favourable 
circumstances. But the same amount 
of demand, and the same price, which 
enable this least productive portion of 
capital barely to replace itself with the 
ordinary profit, enable every other por¬ 
tion to yield a surplus proportioned to 
the advantage it possesses. And this 
surplus it is, which competition enables 
the landlord to appropriate. The rent 
of all land is measured by the excess of 
the return to the whole capital em¬ 
ployed on it, above what is necessary 
to replace the capital with the ordinary 
rate of profit, or in other words, above 
what the same capital would yield if it 
were all employed in as disadvan¬ 
tageous circumstances as the least pro¬ 
ductive portion of it: whether that least 



KENT. 


•productive portion of capital is rendered 
so by being employed on the worst soil, 
or by being expended in extorting more 
produce from land which already yielded 
ns much as it could be made to part 
with on easier terms. 

It is not pretended that the facts of 
any concrete case conform with abso¬ 
lute precision to this or any other sci¬ 
entific principle. We must never forget 
that the truths of political economy 
are truths only in the rough. They 
have the certainty, but not the pre¬ 
cision of exact science. It is not 
for example, strictly true that a farmer 
will cultivate no land, and apply no 
capital, which returns less than the or¬ 
dinary profit. He will expect the ordi¬ 
nary profit on the bulk of his capital. 
But when he has cast in his lot 
with his farm, and bartered his skill 
and exertions, once for all, against what 
the farm will yield to him, he will pro¬ 
bably be willing to expend capital on it 
(for an immediate return) in any man¬ 
ner which will afford him a surplus 
profit, however small, beyond the value 
of the risk, and the interest which he 
must pay for the capital if borrowed, or 
can get for it elsewhere if it is his own. 
But a new farmer, entering on the land, 
would make his calculations differently, 
and would not commence unless he 
co-uld expect the full rate of ordinary 
profit on all the capital which he in¬ 
tended embarking in the enterprise. 
Again, prices may range higher or 
lower during the currency of a lease, 
than was expected when the contract 
was made, and the land, therefore, may 
be over or under-rented: and even 
when the lease expires, the landlord 
may be unwilling to grant a necessary 
diminution of rent, and the farmer, 
rather than relinquish his occupation, 
or seek a farm elsewhere when all are 
occupied, may consent to go on paying 
too high a rent. Irregularities like 
these we must always expect; it is im¬ 
possible in political economy to obtain 
general theorems embracing the com¬ 
plications of circumstances which may 
affect the result in an individual case. 
When, too, the farmer class, having 
but little capital, cultivate for subsis¬ 
tence rather than for profit, and do not 


250 

think of quitting their farm while they 
are able to live by it, their rents ap¬ 
proximate to the character of cottier 
rents, and may be forced up by compe¬ 
tition (if the number of competitors 
exceeds the number of farms) beyond 
the amount which will leave to the 
farmer the ordinary rate of profit. The 
laws which we are enabled to lay down 
respecting rents, profits, wages, prices, 
are only true in so far as the persons 
concerned are free from the influence of 
any other motives than those arising 
from the general circumstances of the 
case, and are guided, as to those, by 
the ordinary mercantile estimate of 
profit and loss. Applying this twofold 
supposition to the case of farmers and 
landlords, it will be true that the far¬ 
mer requires the ordinary rate of profit 
on the whole of his capital; that what¬ 
ever it returns to him beyond this he is 
obliged to pay to the landlord, but will 
not consent to pay more; that there is 
a portion of capital applied to agricul¬ 
ture in such circumstances of produc¬ 
tiveness as to yield only the ordinary 
profits; and that the difference between 
the produce of this, and of any other 
capital of similar amount, is the mea¬ 
sure of the tribute which that other 
capital can and will pay, under the 
name of rent, to the landlord. This 
constitutes a law of rent, as near the 
truth as such a law can possibly be: 
though of course modified or disturbed 
in individual cases, by pending con¬ 
tracts, individual miscalculations, the 
influence of habit, and even the parti¬ 
cular feelings and dispositions of the 
persons concerned. 

§ 5. A remark is often made, which 
must not here be omitted, though, I 
think, more importance has been at¬ 
tached to it than it merits. Under the 
name of rent, many payments are com¬ 
monly included, which are not a remu¬ 
neration for the original powers of the 
land itself, but for capital expended on 
it. The additional rent which land 
yields in consequence of this outlay of 
capital, should, in the opinion of some 
writers, be regarded as profit, not rent. 
But before this can be admitted, a dis¬ 
tinction must be made. The annual 

S 2 




BOOK II. CHAPTER XVI. § 5. 


260 

payment by a tenant almost always 
includes a consideration for the use of 
the buildings on the farm; not only 
barns, stables, and other outhouses, 
but a house to live in, not to speak of 
fences and the like. The landlord will 
ask, and the tenant give, for these, 
whatever is considered sufficient to 
yield the ordinary profit, or rather 
(risk and trouble being here out of the 
question) the ordinary interest, on the 
value of the buildings; that is, not on 
what it has cost to erect them, but on 
what it would now cost to erect others 
as good: the tenant being bound, in 
addition, to leave them in as good re¬ 
pair as he found them, for otherwise a 
much larger payment than simple in¬ 
terest would of course be required 
from him. These buildings are as 
distinct a thing from the farm, as the 
stock or the timber on it; and what is 
paid for them can no more be called 
rent of land, than a payment for cattle 
would be, if it were the custom that 
the landlord should stock the farm for 
the tenant. The buildings, like the 
cattle, are not land, but capital, regu¬ 
larly consumed and reproduced; and 
all payments made in consideration for 
them are properly interest. 

But with regard to capital actually 
sunk in improvements, and not requir¬ 
ing periodical renewal, but spent once 
for all in giving the land a permanent 
increase of productiveness, it appears 
to me that the return made to such 
capital loses altogether the character 
of profits, and is governed by the prin¬ 
ciples of rent. It is true that a land¬ 
lord will not expend capital in improv¬ 
ing his estate, unless he expects from 
the improvement an increase of income, 
surpassing the interest of his outlay. 
Prospectively, this increase of income 
may be regarded as profit; but when 
the expense has been incurred, and 
the improvement made, the rent of 
the improved land is governed by the 
same rules as that of the unimproved. 
Equally fertile land commands an equal 
rent, whether its fertility is natural or 
acquired; and I cannot think that the 
incomes of those who own the Bedford 
Level or the Lincolnshire wolds, ought 
to be called profit and not rent, because 


those lands would have been worth 
next to nothing unless capital had been 
expended on them. The owners are 
not capitalists, but landlords; they 
have parted with their capital; it is 
consumed, destroyed ; and neither is, 
nor is to be, returned to them, like the 
capital of a farmer or manufacturer, 
from what it produces. In lieu of it 
they now have land, of a certain rich¬ 
ness, which yields the same rent, and 
by the operation of the same causes, 
as if it had possessed from the begin¬ 
ning the degree of fertility which has- 
been artificially given to it. 

Some writers, in particular Mr. H. 
C. Carey, take away, still more com¬ 
pletely than I have attempted to do, 
the distinction between these two 
sources of rent, by rejecting one of 
them altogether, and considering all 
rent as the effect of capital expended. 
In proof of this, Mr. Carey contends 
that the whole pecuniary value of all 
the land in any country, in England 
for instance, or in the United States, 
does not amount to anything approach¬ 
ing to the sum which has been laid 
out, or which it would even now be 
necessary to lay out, in order to bring 
the country to its present condition 
from a state of primaeval forest. This 
startling statement has been seized on 
by M. Bastiat and others, as a means 
of making out a stronger case than 
could otherwise be made in defence of 
property in land. Mr. Carey’s proposi¬ 
tion, in its most obvious meaning, 
is equivalent to saying, that if there 
were suddenly added to the lands of 
England an unreclaimed territory of 
equal natural fertility, it would not be 
worth the while of the inhabitants of 
England to reclaim it: because the 
profits of the operation would not be 
equal to the ordinary interest on the 
capital expended. To which assertion 
it any answer could be supposed to be 
required, it would suffice to remark, 
that land not of equal but of greatly 
inferior quality to that previously cul¬ 
tivated, is continually reclaimed in 
England, at an expense which the 
subsequently accruing rent is sufficient 
to replace completely in a small number 
of years. The doctrine, moreover, is 




RENT. 


•totally opposed to Mr. Carey’s own 
economical opinions. No one main¬ 
tains more strenuously than Mr. Carey 
the undoubted truth, that as society 
advances in population, wealth, and 
combination of labour, land constantly 
rises in value and price. This, how¬ 
ever, could not possibly be true if the 
present value of land were less than 
the expense of clearing it and making 
it lit for cultivation; for it must have 
been worth this immediately after it 
was cleared, and according to Mr. 
Carey it has been rising in value ever 
since. When, however, Mr. Carey as¬ 
serts that the whole land of any 
country is not now -worth the capital 
which has been expended on it, he does 
not mean that each particular estate is 
worth less than what has been laid 
out in improving it, and that, to the 
proprietors, the improvement of the 
land has been, on the final result, a mis¬ 
calculation. He means, not that the 
land of Great Britain would not now 
sell for what has been laid out upon it, 
but that it would not sell for that 
amount, plus the expense of making 
all the roads, canals, and railways. 
This is probably true, but is no more 
to the purpose, and no more important 
in political economy, than if the state¬ 
ment had been that it would not sell 
for the sums laid out upon it plus the 
national debt, or plus the cost of the 
French Revolutionary war, or any 
other expense incurred for a real or 
imaginary public advantage. The 
roads, railways, and canals, were not 
constructed to give value to land : on 
the contrary, their natural effect was 
to lower its value, by rendering other 
and rival lands accessible: and the 
landholders of the southern counties 
actually petitioned Parliament against 
the turnpike roads on this very ac¬ 
count. The tendency of improved com¬ 
munications is to lower existing rents, 
by trenching on the monopoly of the 
land nearest to the places where large 
numbers of consumers are assembled. 
Roads and canals are not intended to 
raise the value of the land which 
already supplies the markets, but 
(among other purposes) to cheapen the 
supply, by letting in the produce of 


261 

other and more distant lands: and the 
more effectually this purpose is at¬ 
tained, the lower rent will be. If we 
could imagine that the railways and 
canals of the United States, instead of 
only cheapening communication, did 
their business so effectually as to 
annihilate cost of carriage altogether, 
and enable the produce of Michigan to 
reach the market of New York as 
quickly and as cheaply as the produce 
of Long Island—the whole value of 
all the land of the United States 
(except such as lies convenient for 
building) would be annihilated; or 
rather, the best would only sell for the 
expense of clearing, and the govern¬ 
ment tax of a dollar and a quarter per 
acre ; since land in Michigan, equal to 
the best in the United States, may be 
had in unlimited abundance by that 
amount of outlay. But it is strange 
that Mr. Carey should think this fact 
inconsistent with the Ricardo theory 
of rent. Admitting all that he as¬ 
serts, it is still true that as long as 
there is land which yields no rent, the 
land which does yield rent, does so 
in consequence of some advantage 
which it enjoys, in fertility or vicinity 
to markets, over the other; and the 
measure of its advantage is also the 
measure of its rent. And the cause of 
its yielding rent, is that it possesses a 
natural monopoly; the quantity of 
land, as favourably circumstanced as 
itself, not being sufficient to supply 
the market. These propositions con¬ 
stitute the theory of rent, laid down 
by Ricardo; and if they are true, 
I cannot see that it signifies much 
whether the rent which the land yields 
at the present time, is greater or less 
than the interest of the capital which 
has been laid out to raise its value, 
together with the interest of the capital 
which has been laid out to lower its 
value. 

Mr. Carey’s objection, however, has 
somewhat more of ingenuity than the 
arguments commonly met with against 
the theory of rent: a theorem which 
may be called the pons asinorum of 
political economy, for there are, I am 
inclined to think, few persons who 
have refused their assent to it except 




262 


BOOK II. CHAPTER XVI. § 6. 


from not having thoroughly under¬ 
stood it. The loose and inaccurate 
way in which it is often apprehended 
by those who affect to refute it, is very 
remarkable. Many, for instance, have 
imputed absurdity to Mr. Ricardo’s 
theory, because it is absurd to say that 
the cultivation of inferior land is the 
cause of rent on the superior. Mr. 
Ricardo does not say that it is the cul¬ 
tivation of inferior land, but the neces¬ 
sity of cultivating it, from the insuffi¬ 
ciency of the superior land to feed a 
growing population: between which 
and the proposition imputed to him 
there is no less a difference than that 
between demand and supply. Others 
again allege as an objection against 
Ricardo, that if all land were of equal 
fertility, it might still yield a rent. 
But Ricardo says precisely the same. 
He says that if all lands were equally 
fertile, those which are nearer to their 
market than others, and are there¬ 
fore less burthened with cost of car¬ 
riage, would yield a rent equivalent to 
the advantage; and that the land 
yielding no rent would then be, not 
the least fertile, but the least advan¬ 
tageously situated, which the wants of 
the community required to be brought 
into cultivation. It is also distinctly a 
portion of Ricardo’s doctrine, that even 
apart from differences of situation, the 
land of a country supposed to be of 
uniform fertility would, all of it, on a 
certain supposition, pay rent: namely, 
if the demand of the community re¬ 
quired that it should all be cultivated, 
and cultivated beyond the point at 
which a further application of capital 
begins to be attended with a smaller 
proportional return. It would be im¬ 
possible to show that, except by for¬ 
cible exaction, the whole land of a 
country can yield a rent on any other 
supposition. 

§ 6. After this view of the nature 
and causes of rent, let us turn back to 
the subject of profits, and bring up for 
reconsideration one of the propositions 
laid down in the last chapter. We 
there stated, that the advances of the 
capitalist, or in other words, the ex¬ 
penses of production, consist solely in 


wages of labour; that whatever por¬ 
tion of the outlay is not wages, is pre¬ 
vious profit, and whatever is not pre¬ 
vious profit, is wages. Rent, however, 
being an element which it is impossible 
to resolve into either profit or wages, 
we were obliged, for the moment, to 
assume that the capitalist is not re¬ 
quired to pay rent—to give an equiva¬ 
lent for the use of an appropriated 
natural agent: and I undertook to 
show in the proper place, that this is- 
an allowable supposition, and that rent 
does not really form any part of the ex¬ 
penses of production, or of the advances 
of the capitalist. The grounds on which 
this assertion was made are now appa¬ 
rent. It is true that all tenant far¬ 
mers, and many other classes of pro¬ 
ducers, pay rent. But we have now 
seen, that whoever cultivates land, 
paying a rent for it, gets in return for 
his rent an instrument of superior 
power to other instruments of the 
same kind for which no rent is paid. 
The superiority of the instrument is 
in exact proportion to the rent paid 
for it. If a few' persons had steam- 
engines of superior power to all others 
in existence, but limited by physical 
laws to a number short of the demand, 
the rent wdiich a manufacturer w'ould 
be willing to pay' for one of these 
steam-engines could not be looked 
upon as an addition to his outlay, 
because by the use of it he would save 
in his other expenses the equivalent of 
what it cost him : without it he could 
not do the same quantity of work, 
unless at an additional expense equal 
to the rent. The same thing is true 
of land. The real expenses of pro¬ 
duction are those incurred on the 
w'orst land, or by the capital employed 
in the least favourable circumstances. 
This land or capital pays, as we have 
seen, no rent: but the expenses to 
which it is subject, cause all other land 
or agricultural capital to be subjected 
to an equivalent expense in the form 
of rent. Whoever does pay rent, gets 
back its full value in extra advantages, 
and the rent which he pays does 
not place him in a worse position 
than, but only r in the same position as, 
his fellow'-producer who pays no rent, 



RENT. 263 


but whose instrument is one of inferior 
efficiency. 

We have now completed the exposi¬ 
tion of the laws which regulate the 
distribution of the produce of land, 
labour, and capital, as far as it is 
possible to discuss those laws indepen¬ 
dently of the instrumentality by which 
in a civilized society the distribution is 
effected ; the machinery of Exchange 


and Price. The more complete eluci¬ 
dation and final confirmation of the 
laws which we have laid down, and the 
deduction of their most important con¬ 
sequences, must be preceded by an ex¬ 
planation of the nature and working of 
that machinery—a subject so extensive 

1 and complicated as to require a sepa¬ 
rate Book. 

' 






BOOK III. 


EXCHANGE. 

CHAPTER I. 

OF VALUE. 


§ 1. The subject on which we are 
now about to enter fills so important 
and conspicuous a position in political 
economy, that in the appi*ehension of 
some thinkers its boundaries confound 
themselves with those of the science 
itself. One eminent writer has pro¬ 
posed as a name for Political Economy, 
“ Catallactics,” or the science of ex¬ 
changes : by others it has been called 
the Science of Values. If these deno¬ 
minations had appeared to me logically 
correct, I must have placed the discus¬ 
sion of the elementary laws of value at 
the commencement of our enquiry, 
instead of postponing it to the Third 
Part; and the possibility of so long 
deferring it is alone a sufficient proof 
that this view of the nature of Political 
Economy is too confined. It is true 
that in the preceding Books we have 
not escaped the necessity of anticipat¬ 
ing some small portion of the theory 
of Value, especially as to the value of 
labour and of land. It is nevertheless 
evident, that of the two great depart¬ 
ments of Political Economy, the pro¬ 
duction of wealth and its distribution, 
the consideration of Value has to do 
with the latter alone; and with that 
only so far as competition, and not 
usage or custom, is the distributing 
agency. The conditions and laws of 
Production would be the same as they 
are, if the arrangements of society did 
not depend on exchange, or did not 
admit of it. Even in the present 
system of industrial life, in which em¬ 
ployments are minutely subdivided, j 
and all concerned in production de- • 


pend for their remuneration on the 
price of a particular commodity, ex¬ 
change is not the fundamental law of 
the distribution of the produce, no 
more than roads and carriages are the 
essential laws of motion, but merely a 
part of the machinery for effecting it. 
To confound these ideas, seems to me 
not only a logical, but a practical 
blunder. It is a case of the error too 
common in political economy, of not 
distinguishing between necessities 
arising from the nature of things, and 
those created by social arrangements: 
an error, which appears to me to be at all 
times producing two opposite mischiefs; 
on the one hand, causing political 
economists to class the merely tem¬ 
porary truths of their subject among 
its permanent and universal laws; and 
on the other, leading many persons to 
mistake the permanent laws of Pro¬ 
duction (such as those on which the 
necessity is grounded of restraining 
population) for temporary accidents 
arising from the existing constitution 
of society—which those who would 
frame a new system of social arrange¬ 
ments, are at liberty to disregard. 

In a state of society, however, in 
which the industrial system is entirely 
founded on purchase and sale, each 
individual, for the most part, living 
not on things in the production of 
which he himself bears a part, but on 
things obtained by a double exchange, 
a sale followed by a purchase—the 
question of Value is fundamental. 
Almost every speculation respecting 
the economical interests of a society 





VALUE. 265 


thus constituted, implies some theory 
of Value : the smallest error on that 
subject infects with corresponding 
error all our other conclusions; and 
anything vague or misty in our con¬ 
ception of it, creates confusion and 
uncertainty in everything else. Hap¬ 
pily, there is nothing in the laws of 
Value which remains for the present or 
any future writer to clear up; the 
theory of the subject is complete : the 
only difficulty to be overcome is that 
of so stating it as to solve by anticipa¬ 
tion the chief perplexities which occur 
in applying it: and to do this, some 
minuteness of exposition, and consider¬ 
able demands on the patience of the 
reader, are unavoidable. He will be 
amply repaid, however, (if a stranger to 
these inquiries) by the ease and rapidity 
with which a thorough understanding 
of this subject will enable him to 
fathom most of the remaining ques¬ 
tions of political economy. 

§ 2. We must begin by settling our 
phraseology. Adam Smith, in a pas¬ 
sage often quoted, has touched upon 
the most obvious ambiguity of the 
word value ; which, in one of its senses, 
signifies usefulness, in another, power 
of purchasing; in his own language, 
value in use, and value in exchange. But 
(as Mr. De Quincey has remarked) in 
illustrating this double meaning, Adam 
Smith has himself fallen into another 
ambiguity. Things (he says) which 
have the greatest value in use have 
often little or no value in exchange; 
which is true, since that which can be 
obtained without labour or sacrifice 
will command no price, however useful 
or needful it may be. But he proceeds 
to add, that things which have the 
greatest value in exchange, as a dia¬ 
mond for example, may have little or 
no value in use. This is employing 
the word use, not in the sense in which 
political economy is concerned with it, 
but in that other sense in which use is 
opposed to pleasure. Political economy 
has nothing to do with the comparative 
estimation of different uses in the judg¬ 
ment of a philosopher or of a moralist. 
The use of a thing, in political economy, 
means its capacity to satisfy a desire, 


or serve a purpose. Diamonds have 
this capacity in a high degree, and 
unless they had it, would not bear any 
price. Value in use, or as Mr. De 
Quincey calls it, teleologic value, is 
the extreme limit of value in exchange. 
The exchange value of a thing may 
fall short, to any amount, of its value 
in use ; but that it can ever exceed 
the value in use, implies a contradic¬ 
tion ; it supposes that persons will 
give, to possess a thing, more than 
the utmost value which they them¬ 
selves put upon it, as a means of grati¬ 
fying their inclinations. 

The word Value, when used without 
adjunct, always means, in political 
economy, value in exchange; or as it 
has been called by Adam Smith and 
his successors, exchangeable value, a 
phrase which no amount of authority 
that can be quoted for it can make 
other than bad English. Mr. De 
Quincey substitutes the term Exchange 
Value, which is unexceptionable. 

Exchange value requires to be dis¬ 
tinguished from Price. The words 
Value and Price were used as synony¬ 
mous by the early political economists, 
and are not always discriminated even 
by Kicardo. But the most accurate 
modern writers, to avoid the wasteful 
expenditure of two good scientific 
terms on a single idea, have employed 
Price to express the value of a thing 
in relation to money; the quantity of 
money for which it will exchange. By 
the price of a thing, therefore, we shall 
henceforth understand its value in 
money; by the value, or exchange 
value of a thing, its general power of 
purchasing; the command which its 
possession gives over purchaseable 
commodities in general. 

§ 3. But here a fresh demand for 
explanation presents itself. What is 
meant by command over commodities 
in general ? The same thing exchanges 
for a great quantity of some commo¬ 
dities, and for a very small quantity of 
others. A suit of clothes exchanges 
for a great quantity of bread, and for a 
very small quantity of precious stones. 
The value of a thing in exchange for 
some commodities may be rising, for 




BOOK III. CHAPTER I. § 4. 


266 

others falling. A coat may exchange 
for less bread this year than last, if the 
harvest has been bad, but for more 
glass or iron, if a tax has been taken 
off those commodities, or an improve¬ 
ment made in their manufacture. Has 
the value of the coat, under these cir¬ 
cumstances, fallen or risen? It is im¬ 
possible to say: all that can be said 
is, that it has fallen in relation to one 
thing, and risen in respect to another. 
But there is another ease, in which no 
one would have any hesitation in 
saying what sort of change had taken 
place in the value of the coat: namely, 
if the cause in which the disturbance 
of exchange values originated, was 
something directly affecting the coat 
itself, and not the bread, or the glass. 
Suppose, for example, that an inven¬ 
tion had been made in machinery, by 
which broadcloth could be woven at 
half the former cost. The effect of 
this would be to lower the value of a 
coat, and if lowered by this cause, it 
would be lowered not in relation to 
bread only or to glass only, but to all 
purchaseable things, except such as 
happened to be affected at the very 
time by a similar depressing cause. 
We should therefore say, that there 
had been a fall in the exchange 
value or general purchasing power 
of a coat. The idea of general ex¬ 
change value originates in the fact, 
that there really' are causes which 
tend to alter the value of a thing in 
exchange for things generally, that 
is, for all things which are not them¬ 
selves acted upon by' causes of similar 
tendency'. 

In considering exchange value scien¬ 
tifically, it is expedient to abstract 
from it all causes except those which 
originate in the very commodity under 
consideration. Those which originate 
in the commodities with which we 
compare it, affect its value in relation 
to those commodities ; but those which 
originate in itself, affect its value in 
relation to all commodities. In order 
the more completely to confine our 
attention to these last, it is convenient 
to assume that all commodities but 
the one in question remain invariable 
in their relative “values. When we are 


considering the causes which raise or 
lower the value of com, we suppose 
that woollens, silks, cutlery, sugar, 
timber, &c., while varying in their 
power of purchasing corn, remain 
constant in the proportions in which 
they exchange for one another. On 
this assumption, any one of them may 
be taken as a representative of all the 
rest: since in whatever manner corn 
varies in value with respect to any one 
commodity, it varies in the same 
manner and degree w r ith respect to 
every other; and the upward or down¬ 
ward movement of its value estimated 
in some one thing, is all that needs be 
considered. Its money value, there¬ 
fore, or price, will” represent as well as 
anything else its general exchange 
value, or purchasing power; and from 
an obvious convenience, will often be 
employed by' us in that representative 
character; with the proviso that money 
itself do not vary in its general pur¬ 
chasing power, but that the prices of 
all things, other than that wdiich we 
happen to be considering, remain un¬ 
altered. 

§ 4. The distinction between Value 
and Price, as we have now defined 
them, is so obvious, as scarcely to seem 
in need of any illustration. But in 
political economy' the greatest errors 
arise from overlooking the most obvious 
truths. Simple as this distinction is, 
it has consequences with which a reader 
unacquainted wdth the subject would 
do well to begin early by making him¬ 
self thoroughly familiar. The follow¬ 
ing is one of the principal. There 
is such a thing as a general rise of 
prices. All commodities may rise in 
their money price. But there cannot 
be a general rise of values. It is a 
contradiction in terms. A can only 
rise in value by exchanging for a 
greater quantity of B and C ; in which 
case these must exchange for a smaller 
quantity of A. All things cannot rise 
relatively to one another. If one-halt’ 
of the commodities in the market rise 
in exchange value, the very terms imply' 
a fall of the other half; and reciprocally, 
the fall implies a rise. Things which 
are exchanged for one another can no 




VALUE. 


more all fall, or all rise, than a dozen 
runners can each outrun all the rest, 
or a hundred trees all overtop one 
another. Simple as this truth is, we 
shall presently see that it is lost sight 
of in some of the most accredited 
doctrines both of theorists and of what 
are called practical men. And as a 
first specimen, we may instance the 
great importance attached in the ima¬ 
gination of most people to a rise or fall 
of general prices. Because when the 
price of any one commodity rises, the 
circumstance usually indicates a rise 
of its value, people have an indistinct 
feeling when all prices rise, as if all 
things simultaneously had risen in 
value, and all the possessors had be¬ 
come enriched. That the money prices 
of all things should rise or fall, pro¬ 
vided they all rise or fall equally, is, in 
itself, and apart from existing con¬ 
tracts, of no consequence. It affects 
nobody’s wages, profits, or rent. Every 
one gets more money in the one case 
and less in the other; but of all that 
is to be bought with money they get 
neither more nor less than before. It 
makes no other difference than that of 
using more or fewer counters to reckon 
by. The only thing which in this case 
is really altered in value, is money; 
and the only persons who either gain 
or lose are the holders of money, or 
those who have to receive or to pay 
fixed sums of it. There is a difference 
to annuitants and to creditors the one 
way, and to those who are burthened 
with annuities, or with debts, the con¬ 
trary way. There is a disturbance, in 
short, of fixed money contracts; and 
this is an evil, whether it takes place 
in the debtor’s favour or in the cre¬ 
ditor’s. But as to future transactions 
there is no difference to any one. Let 
it therefore be remembered (and occa¬ 
sions will often rise of calling it to 
mind) that a general rise or a general 
fall of values is a contradiction; and 
that a general rise or a general fall of 
prices is merely tantamount to an 
alteration in the value of money, and 
is a matter of complete indifference, 
save in so far as it affects existing 
oontracts for receiving and paying fixed 
pecuniary amounts, and (it must be 


267 

added) as it affects the interests of the- 
producers of money. 

§ 5. Before commencing the inquiry 
into the laws of value and price, I have 
one further observation to make. I 
must give warning, once for all, that 
the cases I contemplate are those in 
which values and prices are determined 
by competition alone. In so far only 
as they are thus determined, can they 
be reduced to any assignable law. The 
buyers must be supposed as studious 
to buy cheap, as the sellers to sell dear. 
The values and prices, therefore, to 
which our conclusions apply, are mer¬ 
cantile values and prices ; such prices 
as are quoted in price-currents ; prices 
in the wholesale markets, in which 
•buying as well as selling is a matter ot 
business; in which the buyers take 
pains to know, and generally do know, 
the lowest price at which an article of 
a given quality can be obtained ; and 
in which, therefore, the axiom is true, 
that there cannot be for the same 
article, of the same quality, two prices 
in the same market. Our propositions 
will be true in a much more.qualified 
sense, of retail prices ; the prices paid 
in shops for articles of personal con¬ 
sumption. For such things there often 
are not merely two, but many prices, 
in different shops, or even in the same 
shop; habit and accident having as 
much to do in the mutter as general, 
causes. Purchases for private use, 
even by people in business, are not 
always made on business principles: 
the feelings which come into Pj a y ia 
the operation of getting, an d in that °* 
spending their income, are °iten ex¬ 
tremely different. Either fr° m indo¬ 
lence, or carelessness, or because people 
think it fine to pay and ask no ques¬ 
tions, three-fourths of those who can 
afford it give much higher prices than 
necessary for the things they consume; 
while the poor often do the sa llic from, 
ignorance and defect of judgment, 
want of time for searching and making 
inquiry, and not unfrequentl7 h°m 
coercion, open or disguised. Fo r these 
reasons, retail prices do not follow with 
all the regularity which might he ex¬ 
pected, the action of the causes which 



BOOK III. CHAPTER II. § 1. 


-2G8 

• determine wholesale prices. The in- 
lluence of those causes is ultimately 
felt in the retail markets, and is the 
real source of such variations in retail 
prices as are of a general and per¬ 
manent character. But there is no 
regular or exact correspondence. Shoes 
of equally good quality are sold in 
different shops at prices which differ 
considerably; and the price of leather 
may fall without causing the richer 
class of buyers to pay less for shoes. 
Nevertheless, shoes do sometimes fall 
in price; and when they do, the cause 
is always some such general circum¬ 
stance as the cheapening of leather: 
and when leather is cheapened, even if 
no difference shows itself in shops 


frequented by rich people, the artisan 
and the labourer generally get their 
shoes cheaper, and there is a visible 
diminution in the contract prices at 
which shoes are delivered for the 
supply of a workhouse or of a regiment. 
In all reasoning about prices, the pro¬ 
viso must be understood, “ supposing 
all parties to take care of their own 
interest.” Inattention to these distinc¬ 
tions has led to improper applications 
of the abstract principles of political 
economy, and still oftener to an undue 
discrediting of those principles, through 
their being compared with a different 
sort of facts from those which they 
contemplate, or which can fairly be 
expected to accord with them. 


CHAPTER II. 


OF DEMAND AND SUPPLY, IN 

§ 1. That a thing may have any 
value in exchange, two conditions are 
necessary. It must be of some use; 
that is (as already explained) it must 
conduce to some purpose, satisfy some 
desire. No one will pay a price, or 
part with anything which serves some 
of his purposes, to obtain a thing which 
serves none of them. But, secondly, 
the thing must not only have some 
utility, there must also be some diffi¬ 
culty in its attainment. “Any article 
whatever,” says Mr. De Quincey,* “ to 
obtain that artificial sort of value 
which is meant by exchange value, must 
begin by offering itself as a means to 
some desirable purpose ; and secondly, 
even though possessing incontestably 
this preliminary advantage, it will 
never ascend to an exchange value in 
cases where it can be obtained gra¬ 
tuitously and without effort; of which 
last terms both are necessary as limi¬ 
tations. For often it will happen that 
some desirable object may be obtained 
gratuitously ; stoop, and you gather it 
at your feet; but still, because the con¬ 
tinued iteration of this stooping exacts 
* Logic of Political Economy, p. 13. 


THEIR RELATION TO VALUE. 

a laborious effort, very soon it is found, 
that to gather for yourself virtually is 
not gratuitous. In the vast forests of 
the Canadas, at intervals, wild straw¬ 
berries may be gratuitously gathered 
by shiploads: yet such is the exhaus¬ 
tion of a stooping posture, and of a 
labour so monotonous, that everybody 
is soon glad to resign the service into 
mercenary hands.” 

As was pointed out in the last chap¬ 
ter, the utility of a thing in the esti¬ 
mation of a purchaser, is the extreme 
limit of its exchange value: higher 
the value cannot ascend ; peculiar cir¬ 
cumstances are required to raise it so 
high. This topic is happily illustrated 
by Mr. De Quincey. “ Walk into 
almost any possible shop, buy the first 
article you see: what will determine 
its price? In the ninety-nine cases 
out of a hundred, simply the element 
D — difficulty of attainment. The other 
element U, or intrinsic utility, will be 
perfectly inoperative. Let the thing 
(measured by its uses) be, for your 
purposes, worth ten guineas, so that 
you would rather give ten guineas 
than lose it; yet, if the difficulty of 





DEMAND AND SUPPLY. 269 


producing it be only worth one guinea, 
one guinea is the price which it will 
bear. But still not the less, though 
U is inoperative, can U be supposed 
absent ? By no possibility ; for, if it 
had been absent, assuredly you would 
not have bought the article even at 
the lowest price. U acts upon you, 
though it does not act upon the price. 
On the other hand, in the hundredth 
case, we will suppose the circumstances 
reversed; you are on Lake Superior in 
a steam-boat, making your way to an 
unsettled region 800 miles a-liead of 
civilization, and consciously with no 
chance at all of purchasing any luxury 
whatsoever, little luxury or big luxury, 
for the space of ten years to come. 
One fellow-passenger, whom you will 
part with before sunset, has a powerful 
musical snuff-box ; knowing by experi¬ 
ence the power of such a toy over your 
own feelings, the magic with which at 
times it lulls your agitations of mind, 
you are vehemently desirous to pur¬ 
chase it. In the hour of leaving Lon¬ 
don you had forgot to do so ; here is a 
final chance. But the owner, aware of 
your situation not less than yourself, 
is determined to operate by a strain 
pushed to the very uttermost upon U, 
upon the intrinsic worth of the article 
in your individual estimate for your 
individual purposes. He will not hear 
of D as an}* controlling power or 
mitigating agency in the case ; and 
finally, although at six guineas a-piece 
in London or Paris you might have 
loaded a waggon with such boxes, you 
pay sixty rather than lose it when the 
last knell of the clock has sounded, 
which summons you to buy now or to 
forfeit for ever. Here, as before, only 
one element is operative : before it was 
D, now it is U. But after all, D was 
not absent, though inoperative. The 
inertness of D allowed U to put forth 
its total effect. The practical com¬ 
pression of D being withdrawn, U 
springs up like water in a pump when 
released from the pressure of air. Yet 
still that D was present to your 
thoughts, though the price was other¬ 
wise regulated, is evident; both be¬ 
cause U and D must coexist in order to 
found any case of exchange value what¬ 


ever, and because undeniably you take 
into very particular consideration this 
D, the extreme difficulty of attainment 
(which here is the greatest possible, 
viz. an impossibility) before you con¬ 
sent to have the price racked up to U. 
The special D has vanished : but it is 
replaced in your thoughts by an un¬ 
limited D. Undoubtedly you have 
submitted to U in extremity as the 
regulating force of the price ; but it 
was under a sense of D’s latent pre¬ 
sence. Yet D is so far from exerting 
any positive force, that the retirement 
of D from all agency whatever on the 
price—this it is which creates as it 
were a perfect vacuum, and through 
that vacuum U rushes up to its highest 
and ultimate gradation.” 

This case, in which the value is 
wholly regulated by the necessities or 
desires of the purchaser, is the case of 
strict and absolute monopoly; in 
which, the article desired being only 
obtainable from one person, he can 
exact any equivalent, short of the 
point at which no purchaser could 
be found. But it is not a necessary 
consequence, even of complete mono¬ 
poly, that the value should be forced 
up to this ultimate limit: as will be- 
seen when we have considered the law 
of value in so far as depending on the 
other element, difficulty of attainment. 

§ 2. The difficulty of attainment 
which determines value, is not always- 
the same kind of difficulty. It some¬ 
times consists in an absolute limita¬ 
tion of the supply. There are things 
of which it is physically impossible to 
increase the quantity beyond certain 
narrow limits. Such are those wines- 
which can be grown only in peculiar 
circumstances of soil, climate, and. 
exposure. Such also are ancient 
sculptures; pictures by old masters - 
rare books or coins, or other articles of 
antiquarian curiosity. Among such 
may also be reckoned houses and 
building-ground, in a town of definite 
extent (such as Venice, or any fortified 
town where fortifications are necessary 
to security); the most desirable sites 
in any town whatever; houses and 
parks peculiarly favoured by natural 



BOOK III. CHAPTER II. § 3. 


270 

beauty, in places where that advantage 
is uncommon. Potentially, all land 
whatever is a commodity of this class ; 
and might be practically so, in coun¬ 
tries fully occupied and cultivated. 

But there is another category, (em¬ 
bracing the majority of all things that 
are bought and sold,) in which the 
obstacle to attainment consists only in 
the labour and expense requisite to 
produce the commodity. Without a 
certain labour and expense it cannot 
be had: but when any one is walling 
to incur these, there needs be no limit 
to the multiplication of the product. 
If there were labourers enough and 
machinery enough, cottons, woollens, 
or linens might be produced by thou¬ 
sands of yards for every single yard 
now' manufactured. There would be a 
point, no doubt, where further increase 
would be stopped by the incapacity of 
the earth to afford more of the ma¬ 
terial. But there is no need, for any 
purpose of political economy, to con¬ 
template a time when this ideal limit 
could become a practical one. 

There is a third case, intermediate 
between the two preceding, and rather 
more complex, which I shall at present 
merely indicate, but the importance of 
which in political economy is extremely 
great. There are commodities wdiich 
can be multiplied to an indefinite ex¬ 
tent by labour and expenditure, but 
not by a fixed amount of labour and 
expenditure. Only a limited quantity 
can be produced at a given cost; if 
more is wanted, it must be produced at 
a greater cost. To this class, as has 
been often repeated, agricultural pro¬ 
duce belongs ; and generally all the 
rude produce of the earth ; and this 
peculiarity is a source of very import¬ 
ant consequences ; one of which is the 
necessity of a limit to population ; and 
another, the payment of rent. 

§ 3. These being the three classes, 
in one or other of which all things 
that are bought and sold must take 
their place, we shall consider them in 
their order. And first, of things abso¬ 
lutely limited in quantity, such as 
-ancient sculptures or pictures. 

Of such things it is commonly said, | 


that their value depends upon their 
scarcity: but the expression is not 
sufficiently definite to serve our pur¬ 
pose. Others say, with somewhat 
greater precision, that the value de¬ 
pends on the demand and the supply. 
But even this statement requires much 
explanation, to make it a clear expo¬ 
nent of the relation between the value 
of a thing, and the causes of which 
that value is an effect. 

The supply of a commodity is an 
intelligible expression: it means the 
quantity offered for sale ; the quantity 
that is to be had, at a given time and 
place, by those who wish to purchase 
it. But what is meant by the de¬ 
mand? Not the mere desire for the 
commodity. A beggar may desire a 
diamond; but his desire, how'ever 
great, will have no influence on the 
price. Writers have therefore given a 
more limited sense to demand, and 
have defined it, the wish to possess, 
combined with the power of pur¬ 
chasing. To distinguish demand in 
this technical sense, from the demand 
which is synonymous with desire, they 
call the former effectual demand.* 
After this explanation, it is usually 
supposed that there remains no further 
difficulty, and that the value depends 
upon the ratio between the effectual 
demand, as thus defined, and the 
supply. 

'these phrases, how r ever, fail to 
satisfy any one wdio requires clear 
ideas, and a perfectly precise expres¬ 
sion of them. Some confusion must 
always attach to a phrase so inappro¬ 
priate as that of a ratio betw r een two 
things not of the same denomination. 
What ratio can there be between a 
quantity and a desire, or even a desire 
combined with a power ? A ratio 
between demand and supply is only 
intelligible if by demand we mean 
the quantity demanded, and if the 

* Adam Smith, who introduced the ex¬ 
pression “ effectual demand,” employed It to 
denote the demand of those who are willing 
and able to give for the commodity what he 
calls its natural price, that is, the price 
which will enable it to be permanently pro¬ 
duced and brought to market.— See his 
chapter on Natural and Market Price 
(book i. ch. 7J 



DEMAND AND SUPPLY. 


ratio intended is that between the 
quantity demanded and the quantity 
supplied. Exit again, the quantity 
demanded is not a fixed quantity, even 
at the same time and place ; it varies 
according to the value : if the thing is 
cheap, there is usually a demand for 
more of it than when it is dear. The 
demand, therefore, partly depends on 
the value. But it was before laid 
down that the value depends on the 
demand. From this contradiction how 
shall we extricate ourselves? How 
solve the paradox, of two things, each 
depending upon the other ? 

Though the solution of these diffi¬ 
culties is obvious enough, the diffi¬ 
culties themselves are not fanciful; and 
I bring them forward thus prominently, 
because I am certain that they ob¬ 
scurely haunt every inquirer into the 
subject who has not openly faced and 
distinctly realized them. Undoubt¬ 
edly the true solution must have been 
frequently given, though I cannot call 
to mind any one who had given it 
before myself, except the eminently 
clear thinker and skilful expositor, 
J. B. Say. I should have imagined, 
however, "that it must be familiar to all 
political economists, if the writings of 
several did not give evidence of some 
want of clearness on the point, and if 
the instance of Mr. De Quincey did 
not prove that the complete non¬ 
recognition and implied denial of it are 
compatible with great intellectual in¬ 
genuity, and close intimacy with the 
subject matter. 

§ 4. Meaning, by the word demand, 
the quantity demanded, and remember¬ 
ing that this is not a fixed quantity, 
but in general varies according to the 
value, let us suppose that the demand 
at some particular time exceeds the 
supply, that is, there are persons ready 
to buy, at the market value, a greater 
quantity than is offered for sale. Com¬ 
petition takes place on the side of the 
buyers, and the value rises: but how 
much ? In the ratio (some may sup¬ 
pose) of the deficiency: if the demand 
exceeds the supply by one-third, the 
value rises one-third. By no means : 
for when the value has risen one-third, 


271 

the demand may still exceed the sup¬ 
ply ; there may, even at that higher 
value, be a greater quantity wanted 
than is to be had; and the competi¬ 
tion of buyers may still continue. If 
the article is a necessary of life, which, 
rather than resign, people are willing 
to pay for at any price, a deficiency of 
one-third may raise the price to double, 
triple, or quadruple.* Or, on the con- 
trary, the competition may cease before 
the value has risen in even the pro-> 
portion of the deficiency. A rise, 
short of one-third, may place the article 
beyond the means, or beyond the in¬ 
clinations, of purchasers to the full 
amount. At what point, then, will 
the rise be arrested? At the point, 
whatever it be, which equalizes the 
demand and the supply : at the price 
which cuts off the extra third from the 
demand, or brings forward additional 
sellers sxxfficient to supply it. When, 
in either of these ways, or by a com¬ 
bination of both, the demand becomes 
equal and no more than equal to the 
supply, the rise of value will stop. 

The converse case is equally simple. 
Instead of a demand beyond the sup¬ 
ply, let us suppose a supply exceeding 
the demand. The competition will 
now be on the side of the sellers : the 
extra quantity can only find a market 
by calling forth an additional demand 
equal to itself. This is accomplished 
by means of cheapness ; the value 
falls, and brings the article within the 
reach of more numerous customers, or 
induces those who were already con¬ 
sumers to make increased purchases. 
The hill of value required to re-estab¬ 
lish equality, is different in different 
cases. The kinds of things in which 
it is commonly greatest are at the two 
extremities of the scale; absolute 

* “ The price of corn in this country has 
risen from 100 to 200 per cent and upwards, 
when the utmost computed deficiency of the 
crops has not been more than between one- 
sixth and one-third below an average, and 
when that deficiency has been relieved by 
foreign supplies. If there should be a defi¬ 
ciency of the crops amounting to one-third, 
without any surplus from a former year, and 
without any chance of relief by importation, 
the price might rise five, six, or even ten¬ 
fold.”— Tooke’s History of Prices, vol, i. 
pp. 13—5. 





272 BOOK III. CH 

necessaries, or those peculiar luxuries, 
the taste for which is confined to a 
small class. In the case of food, as 
those who have already enough do not 
require more on account of its cheap¬ 
ness, but rather expend in other things 
what they save in food, the increased 
consumption occasioned by cheapness, 
carries off, as experience shows, only a 
small part of the extra supply caused 
by an abundant harvest ;* and the fall 
is practically arrested only when the 
farmers withdraw their corn, and hold 
it back in hopes of a higher price; or by 
the operations of speculators who buy 
corn when it is cheap, and store it up 
to be brought out when more urgently 
wanted. Whether the demand and 
supply are equalized by an increased 
demand, the result of cheapness, or by 
withdrawing a part of the supply, 
equalized they are in either case. 

Thus we see that the idea of a ratio, 
as between demand and supply, is out 
of place, and has no concern in the 
matter: the proper mathematical ana¬ 
logy is that of an equation. Demand 
and supply, the quantity demanded 
and the quantity supplied, will be made 
equal. If unequal at any moment, 
competition equalizes them, and the 
manner in which this is done is by an 
adjustment of the value. If the de¬ 
mand increases, the value rises ; if the 
demand diminishes, the value falls: 
again, if the supply falls off, the value 
rises ; and falls, if the supply is in¬ 
creased. The rise or the fall continues 
until the demand and supply are again 
equal to one another: and the value 
which a commodity will bring in any 
market, is no other than the value 
which, in that market, gives a demand 
just sufficient to carry off the existing 
or expected supply. 

This, then, is the Law of Value, 
with respect to all commodities not 
susceptible of being multiplied at plea¬ 
sure. Such commodities, no doubt, 
are exceptions. There is another law 
for that much larger class of things, 
which admit of indefinite multiplica¬ 
tion. But it is not the less necessary 
to conceive distinctly and grasp firmly 

* See Tooke, and the Report of the Agri¬ 
cultural Committee of 1821. 


:apter ii. § 5 . 

the theory of this exceptional case. 
In the first place, it will be found to 
be of great assistance in rendering the 
more common case intelligible. And 
in the next place, the principle of the 
exception stretches wider, and embraces 
more cases, than might at first be sup¬ 
posed. 

§ 5. There are but few commodities 
which are naturally and necessarily 
limited in supply. But any commodity 
whatever may be artificially so. Any 
commodity may be the subject of a 
monopoly: like tea, in this country, 
up to 1834; tobacco in France, opium 
in British India, at present. The price 
of a monopolized commodity is com¬ 
monly supposed to be arbitrary; de¬ 
pending on the will of the monopolist, 
and limited only (asin Mr. De Quincey’s 
case of the musical box in the wilds of 
America) by the buyer’s extreme esti¬ 
mate of its worth to himself. This is 
in one sense true, but forms no excep¬ 
tion, nevertheless, to the dependence 
of the value on supply and demand. 
The monopolist can fix the value as 
high as he pleases, short of what the 
consumer either could not or would not 
pay; but he can only do so by limiting 
the supply. The Dutch East India Com¬ 
pany obtained a monopoly price for 
the produce of the Spice Islands, but 
to do so they were obliged, in good 
seasons, to destroy a portion of the 
crop. Had they persisted in selling 
all that they produced, they must have 
forced a market by reducing the price, 
so low, perhaps, that they would have 
received for the larger quantity a less 
total return than for the smaller: at 
least they showed that such was their 
opinion by destroying the surplus. 
Even on Lake Superior, Mr. De 
Quincey’s huckster could not have sold 
his box for sixty guineas, if he had 
possessed two musical boxes and de¬ 
sired to sell them both. Supposing 
the cost price of each to be six guineas, 
he would have taken seventy for the 
two in preference to sixty for one ; that 
is, although his monopoly was the 
closest possible, he would have sold 
the boxes at tbirty-five guineas each, 
notwithstanding that sixty was not 




DEMAND AND SUPPLY. 


beyond the buyer’s estimate of the 
article for his purposes. Monopoly 
value, therefore, does not depend on any 
peculiar piineiple, but is a mere variety 
of the ordinary case of demand and 
supply. 

Again, though there are few commo¬ 
dities which are at all times and for 
ever unsusceptible of increase of supply, 
any commodity whatever may be tem¬ 
porarily so; and with some commo¬ 
dities this is habitually the case. 
Agricultural produce, for example, 
cannot be increased in quantity before 
the next harvest; the quantity of corn 
already existing in the world, is all 
that can be had for sometimes a year 
to come. During that interval, corn 
is practically assimilated to things of 
which the quantity cannot be in¬ 
creased. In the case of most commo¬ 
dities, it requires a certain time to in¬ 
crease their quantity; and if the 
demand increases, then until a corre¬ 
sponding supply can be brought for¬ 
ward, that is, until the supply can 
accommodate itself to the demand, the 
value will so rise as to accommodate 
the demand to the supply. 

There is another case, the exact 
converse of this. There are some 
articles of which the supply may be 
indefinitely increased, but cannot be 
rapidly diminished. There are things 
so durable that the quantity in exist¬ 
ence is at all times very great in 
comparison with the annual produce. 
Gold, and the more durable metals, 
are things of this sort; and also 
houses. The supply of such things 
might be at once diminished by de¬ 
stroying them ; but to do this could 
only be the interest of the possessor if 
he had a monopoly of the article, and 
could repay himself for the destruction 
of a part by the increased value of the 


273 

remainder. The value, therefore, of 
such things may continue for a long 
time so low, either from excess of 
supply or falling off in the demand, as 
to put a complete stop to further pro¬ 
duction : the diminution of supply by 
wearing out being so slow a process, 
that a long time is requisite, even 
under a total suspension of production, 
to restore the original value. During 
that interval the value will be regu¬ 
lated solely by supply and demand, 
and will rise very gradually as the 
existing stock wears out, until there is 
again a remunerating value, and pro¬ 
duction resumes its course. 

Finally, there are commodities of 
which, though capable of being in¬ 
creased or diminished to a great, and 
even an unlimited extent., the value 
never depends upon anything but de¬ 
mand and supply. This is the case, 
in particular, with the commodity 
Labour: of the value of which we 
have treated copiously in the preceding 
Book : and there are many cases be¬ 
sides, in which we shall find it neces¬ 
sary to call in this principle to solve 
difficult questions of exchange value. 
This will be particularly exemplified 
when we treat of International Values; 
that is, of the terms of interchange 
between things produced in different 
countries, or, to speak more generally 
in distant places. But into these 
questions we cannot enter until we 
shall have examined the case of com¬ 
modities which can be increased in 
quantity indefinitely and at pleasm-e ; 
and shall have determined by what 
law, other than that of Demand and 
Supply, the permanent or average 
values of such commodities are regu¬ 
lated. This we shall do in the next 
chapter. 




r.E. 



274 


COOK III. CHAPTER III. § 1, 


CHAPTER III. 

OP COST OP PRODUCTION, IN ITS RELATION TO VALUE. 


§ 1. When the production of a 
commodity is the effect of labour and 
expenditure, -whether the commodity 
is susceptible of unlimited multiplica¬ 
tion or not, there is a minimum value 
which is the essential condition of its 
being permanently produced. The 
value at any particular time is the 
result of supply and demand; and is 
always that which is necessary to 
create a market for the existing supply. 
But uuless that value is sufficient to 
repay the Cost of Production, and to 
afford, besides, the ordinary expecta¬ 
tion of profit, the commodity will not 
continue to be produced. Capitalists 
will not go on permanently producing 
at a loss. They will not even go on 
producing at a profit less than they can 
live upon. Persons whose capital is 
already embarked, and cannot be easily 
extricated, will persevere for a con¬ 
siderable time without profit, and have 
been known to persevere even at a 
loss, in hope of better times. But 
they will not do so indefinitely, or 
when there is nothing to indicate that 
times are likely to improve. No new 
capital will be invested in an employ¬ 
ment, unless there be an expectation 
not only of some profit, but of a profit 
as great (regard being had to the de¬ 
gree of eligibility of the employment 
in other respects) as can be hoped for 
in any other occupation at that time 
and place. When such profit is evi¬ 
dently not to be had, if people do not 
actually withdraw their capital, they 
at least abstain from replacing it when 
consumed. The cost of production, 
together with the ordinary profit, may, 
therefore be called the necessary price 
or value, of all things made by labour 
and capital. Nobody willingly pro¬ 
duces in the prospect of loss. Who¬ 
ever does so, does it under a miscalcu¬ 
lation, which he corrects as fast as he 
is able. 

When a commodity is not only made 


by labour and capital, but can be mader 
by them in indefinite quantity, this 
Necessary Value, the minimum with 
which the producers will be content, is 
also, if competition is free and active, 
the maximum which they can expect. 
If the value of a commodity is such 
that it repays the cost of production 
not only with the customary, but wdth 
a higher rate of profit, capital rushes 
to share in this extra gain, and by in¬ 
creasing the supply of the article, 
reduces its value. This is not a mere 
supposition or surmise, but a fact 
familiar to those conversant with-com¬ 
mercial operations. Whenever a new 
line of business presents itself, offering 
a hope of unusual profits, and when¬ 
ever any established trade or manu¬ 
facture is believed to be yielding a 
greater profit than customary, there is 
sure to be in a short time so large a 
production or importation of the com¬ 
modity, as not only destroys the extra 
profit, but generally goes beyond the 
mark, and sinks the value as much too 
low as it had before been raised too 
high; until the over-supply is corrected 
by a total or partial suspension of fur¬ 
ther production. As already inti¬ 
mated,* these variations in the 
quantity produced do not presuppose 
or require that any person should 
change his employment. Those whose 
business is thriving, increase their pro¬ 
duce by availing themselves more 
largely of their credit, while those who 
are not making the ordinary profit, 
restrict their operations, and (in manu¬ 
facturing phrase) work short time. In 
this mode is surely and speedily effected 
the equalization, not of profits perhaps, 
but of the expectations of profit, in 
different occupations. 

As a general rule, then, things tend to 
exchange for one another at such values 
as will enable each producer to be re¬ 
paid the cost of production with the 
* Supra, p. 249. 



COST OF PRODUCTION, 


ordinary profit; in other words, such 
as will give to all producers the same 
rate of profit on their outlay. But in 
order that the profit may be equal 
where the outlay, that is, the cost of 
production, is equal, things must on 
the average exchange for one another 
in the ratio of their cost of production ; 
things of which the cost of production 
is the same, must be of the same value. 
For only thus will an equal outlay 
yield an equal return. If a farmer 
with a capital equal to 1000 quarters 
of corn, can produce 1200 quarters, 
yielding him a profit of 20 per cent; 
whatever else can be produced in the 
same time by a capital of 1000 quar¬ 
ters, must be worth, that is, must ex¬ 
change for, 1200 quarters, otherwise 
the producer would gain either more 
or less than 20 per cent. 

Adam Smith and Ricardo have 
called that value of a thing which is 
proportional to its cost of production, 
its Natural Value (or its Natural 
Price). They meant by this, the point 
about which the value oscillates, and 
to which it always tends to return ; the 
centre value, towards which, as Adam 
Smith expresses it, the market value 
of a thing is constantly gravitating; 
and any deviation from which is but a 
temporary irregularity, which, the 
moment it exists, sets forces in motion 
tending to correct it. On an average 
of years sufficient to enable the oscil¬ 
lations on one side of the central line 
to be compensated by those on the 
other, the market value agrees with 
the natural value ; but it very seldom 
coincides exactly with it at any par¬ 
ticular time. The sea everywhere 
tends to a level; but it never is at an 
exact level; its surface is always ruf¬ 
fled by waves, and often agitated by 
storms. It is enough that no point, at 
least in the open sea, is permanently 
higher than another. Each place is 
alternately elevated and depressed; 
hut the ocean preserves its level. 

§ 2. The latent influence by which 
the values of things are made to con¬ 
form in the long run to the cost of 
production, is the variation that would 
otherwise take place in the supply of 


275 

the commodity. The supply would be 
increased if the thing continued to sell 
above the ratio of its cost of produc¬ 
tion, and -would be diminished if it 
fell below that ratio. But we must not 
therefore suppose it to be necessary 
that the supply should actually be 
either diminished or increased. Sup¬ 
pose that the cost of production of a 
thing is cheapened by some mecha¬ 
nical invention, or increased by a tax. 
The value of a thing would in a little 
time, if not immediately, fall in the 
one case, and rise in the other; and it 
would do so, because if it did not, the 
supply would in the one case be in¬ 
creased, until the price fell, in the other 
diminished, until it rose. For this 
reason, and from the erroneous notion 
that value depends on the proportion 
between the demand and the supply, 
many persons suppose that this pro¬ 
portion must be altered whenever there 
is any change in the value of the com¬ 
modity ; that the value cannot hill 
through a diminution of the cost of 
production, unless the supply is perma¬ 
nently increased ; nor rise, unless the 
supply is permanently diminished. But 
this is not the fact: there is no need 
that there should be any actual altera¬ 
tion of supply ; and when there is, the 
alteration, if permanent, is not the 
cause but the consequence of the altera¬ 
tion in value. If, indeed, the supply 
could not be increased, no diminution 
in the cost of production would lower 
the value : but there is by no means 
any necessity that it should. The 
mere possibility often suffices; the 
dealers are aware of what would hap¬ 
pen, and their mutual competition 
makes them anticipate the result by 
lowering the price. Whether there 
will be a greater permanent supply of 
the commodity, after its production 
has been cheapened, depends on quite 
another question, namely, on whether 
a greater quantity is wanted at the 
reduced value. Most commonly a 
greater quantity is wanted, but not 
necessarily. “ A man,” says Mr. 
De Quincey,* “ buys an article of in¬ 
stant applicability to his own purposes 
the more readily and the more largely 

* Logic of Political Economy, pp. 230—1. 

T 9 




BOOK III. CHAPTER III. § 2. 


276 

as it happens to be cheaper. Silk 
handkerchiefs having fallen to half- 
price, he will buy, perhaps, in three¬ 
fold quantity; but he does not buy 
more steam-engines because the price 
is lowered. His demand for steam- 
engines is almost always predetermined 
by the circumstances of his situation. 
So far as he considers the cost at all, 
it is much more the cost of working 
this engine than the cost upon its 
purchase. But there are many articles 
for which the market is absolutely 
and merely limited by a pre-existing 
system , to which those articles are 
attached as subordinate parts or mem¬ 
bers. How could we force the dials or 
faces of timepieces by artificial cheap¬ 
ness to sell more plentifully than the 
inner works or movements of such 
timepieces ? Could the sale of. 
wine-vaults be increased without in¬ 
creasing the sale of wine? Or the 
tools of shipwrights find an enlarged 
market whilst shipbuilding was sta¬ 
tionary? .... Offer to a town of 
3000 inhabitants a stock of hearses, 
no cheapness will tempt that town into 
buying more than one. Offer a stock of 
yachts, the chief cost lies in manning, 
victualling, repairing; no diminution 
upon the mere price to a purchaser 
will tempt into the market any man 
whose habits and propensities had not 
already disposed him to such a pur¬ 
chase. So of professional costume for 
bishops, lawyers, students at Oxford.’’ 
Hobody doubts, however, that the price 
and value of all these things would be 
eventually lowered by any diminution 
of their cost of production; and 
lowered through the apprehension 
entertained of new competitors, and 
an increased supply : though the great 
hazard to which a new competitor 
would expose himself, in an article 
not susceptible of any considerable ex¬ 
tension of its market, w r ould enable 
the established dealers to maintain 
their original prices much longer than 
they could do in an article offering 
more encouragement to competition. 

Again, reverse the case, and sup¬ 
pose the cost of production increased, 
as for example by laying a tax on the 
commodity. The value would rise; 
And that, probably, immediately. 


Would the supply be diminished? Only 
if the increase of value diminished 
the demand. Whether this effect fol¬ 
lowed, would soon appear, and if it did, 
the value would recede somewhat, 
from excess of supply, until the pro¬ 
duction w r as reduced, and would then 
rise again. There are many articles 
for which it requires a very consider¬ 
able rise of price, materially to reduce 
the demand ; in particular, articles of 
necessity, such as the habitual food of 
the people; in England, wheaten 
bread: of which there is probably 
almost as much consumed, at the pre¬ 
sent cost price, as there would be with 
the present population at a price con¬ 
siderably lower. Yet it is especially 
in such things that dearness or high 
price is popularly confounded with 
scarcity. Food may be dear from 
scarcity, as after a bad harvest; but 
the dearness (for example) which is the 
effect of taxation, or of corn laws, has 
nothing whatever to do with insuf¬ 
ficient »supply: such causes do not 
much diminish the quantity of food in 
a country: it is other things rather 
than food that are diminished in quan¬ 
tity by them, since, those who pay 
more for food not having so much to 
expend otherwise, the production of 
other things contracts itself to the 
limits of a smaller demand. 

It is, therefore, strictly correct to 
say, that the value of things which 
can be increased in quantity at plea¬ 
sure, does not depend (except acci¬ 
dentally, find during the time necessary 
for production to adjust itself,) upon 
demand and supply ; on the contrary, 
demand and supply depend upon it. 
There is a demand for a certain quan¬ 
tity of the commodity at its natural or 
cost value, and to that the supply in 
the long run endeavours to conform. 
When at any time it fails of so con¬ 
forming, it is either from miscalcula¬ 
tion, or from a change in some of the 
elements of the problem : either in the 
natural value, that is, in the cost of 
production ; or in the demand, from 
an alteration in public taste or in the 
number or wealth of the consumers. 
These causes of disturbance are very 
liable to occur, and when any one of 
them does occur, the market value of 




ULTIMATE ANALYSIS OF COST OF PRODUCTION. 


the article ceases to agree with the . 
natural value. The real law of de¬ 
mand and supply, the equation between 
them, holds good in all cases : if a 
value different from the natural value 
be necessary to make the demand 
eqnal to the supply, the market value 
will deviate from the natural value ; 
hut omy for a time ; for the permanent 
tendency of supply is to conform itself 
to the demand which is found by expe¬ 
rience to exist for the commodity when 
seuing at its natural value. If the 
supply is either more or less than this, 
it is so accidentally, and affords either 
more or less than the ordinary rate of 
profit; which, under, free and active 
competition, cannot long continue to 
be the case. 

To recapitulate: demand and supply 
govern the value of all things which 
cannot be indefinitely increased; ex¬ 
cept that even for them, when produced | 


277 

I by industry, there is a minimum value, 
determined by the cost of production, 
But in all things which admit of inde¬ 
finite multiplication, demand and supply 
only determine the perturbations of 
value, during a period which cannot 
exceed the length of time necessary 
for altering the supply. While thus 
ruling the oscillations of value, they 
themselves obey a superior force, which 
makes value gravitate towards Cost of 
Production, and which would settle it 
and keep it there, if fresh disturbing 
influences were not continually arising 
to make it again deviate. To pursue 
the same strain of metaphor, demand 
and supply always rush to an equili¬ 
brium, but the condition of stable 
equilibrium is when things exchange 
for each other according to their cost 
of production, or, in the expression we 
have used, when things are at their 

j Natural Value. 


CHAPTER IV. 

ULTIMATE ANALYSIS OF COST OF PRODUCTION. 


§ 1. The component elements of 
Cost of Production have been set forth 
in the First Part of this enquiry.* 
The principal of them, and so much 
the principal as to be nearly the sole, 
we found to be Labour. What the 
production of a thing costs to its pro¬ 
ducer, or its series of producers, is the 
labour expended in producing it. If 
we consider as the producer the capi¬ 
talist who makes the advances, the 
word Labour may be replaced by the 
word Wages: what the produce costs 
to him, is the wages which he has had 
to pay. At the first glance indeed 
this seems to be only a part of his out¬ 
lay, since he has not only paid wages 
to labourers, but has likewise provided 
them with tools, materials, and per¬ 
haps buildings. These tools, materials, 
and buildings, however, were produced 
by labour and capital; and their value, 
like that of the article to the produc¬ 
tion of which they are subservient, 
* Supra, pp. 19, 20. 


depends on cost of production, which 
again is resolvable into labour. The 
cost of production of broadcloth does 
not wholly consist in the wages of 
weavers; which alone are directly paid 
by the cloth manufacturer. It consists 
also of the wages of spinners and 
woolcombers, and it may be added, of 
shepherds, all of which the clothier 
has paid for in the price of yarn. It 
consists too of the wages of builders 
and brickmakers, which he has reim¬ 
bursed in the contract price of erecting 
his factory. It partly consists of the 
wages of machine-makers, iron-founders, 
and miners. And to these must be 
added the wages of the earners who 
transported any of the means and 
appliances of the production to the 
place where they were to be used, 
and the product itself to the place 
where it is to be sold. 

The value of commodities, there¬ 
fore, depends principally (we shall pre¬ 
sently see whether it depends solely) 







278 BOOK III. CHAPTER IV. § 2. 


on the quantity of labour required for 
their production ; including in the idea 
of production, that of conveyance to 
the market. “In estimating,” says 
Ricardo,* “ the exchangeable value of 
stockings, for example, we shall find 
that their value, comparatively with 
other things, depends on the total 
quantity of labour necessary to manu¬ 
facture them and bring them to 
market. First, there is the labour 
necessary to cultivate the land on 
which the raw cotton is grown; 
secondly, the labour of conveying the 
cotton to the country where the stock¬ 
ings .are to he manufactured, which 
includes a portion of the labour be¬ 
stowed in building the ship in which it 
is conveyed, and which is charged in 
the freight of the goods ; thirdly, the 
labour of the spinner and weaver; 
fourthly, a portion of the labour of the 
engineer, smith, and carpenter, who 
erected the buildings and machinery 
by the help of which they are made ; 
fifthly, the labour of the retail dealer, 
and of many others, whom it is un¬ 
necessary further to particularize. The 
aggregate sum of these various kinds 
of labour, determines the quantity of 
other things for which these stockings 
will exchange, while the same con¬ 
sideration of the various quantities of 
labour which have been bestowed on 
those other things, will equally govern 
the portion of them which will be given 
for the stockings. 

“ To convince ourselves that this is 
the real foundation of exchangeable 
value, let us suppose any improvement 
to be made in the means of abridging 
labour in any one of the various pro¬ 
cesses through which the raw cotton 
must pass before the manufactured 
stockings come to the market to be 
exchanged for other things; and ob¬ 
serve the effects which will follow. If 
fewer men were required to cultivate 
the raw cotton, or if fewer sailors were 
employed in navigating, or shipwrights 
in constructing, the ship in which it 
was conveyed to us; if fewer hands 
were employed in raising the buildings 
and machinery, or if these, when raised, 

* Principles of Political Economy and 
Taxation , ch.i. sect. 3. 


were rendered more efficient; the 
stockings would inevitably fall in value, 
and command less of other things. 
They would fall, because a less qiian- 
tity of labour was necessary’to their 
production, and would therefore ex¬ 
change for a smaller quantity of those 
things in which no such abridgment of 
labour had been made. 

“Economy in the use of labour 
never fails to reduce the relative value 
of a commodity, whether the saving be 
in the labour necessary to the manu¬ 
facture of the commodity itself, or in 
that necessary to the formation of the 
capital, by the aid of which it is pro¬ 
duced. In either case the price of 
stockings would fall, whether there 
were fewer men employed as bleachers, 
spinners, and weavers, persons imme¬ 
diately necessary to their manufacture; 
or as sailors, carriers, engineers, and 
smiths, persons more indirectly con¬ 
cerned. In the one case, the whole 
saving of labour would fall on the 
stockings, because that portion of 
labour was wholly confined to the 
stockings; in the other, a portion only 
would fall on the stockings, the re¬ 
mainder being applied to all those 
other commodities, to the production 
of which the buildings, machinery, 
and carriage, were subservient.” 

§ 2. It will have been observed that 
Ricardo expresses himself as if the 
quantity of labour which it costs to 
produce a commodity and bring it to 
market, were the only thing on which 
its value depended. But since the 
cost of production to the capitalist is 
not labour but wages, and since wages 
may be either greater or less, the quan¬ 
tity of labour being the same ; it would 
seem that the value of the product 
cannot be determined solely by the 
quantity of labour, but by the quantity 
together with the remuneration; and 
that values must partly depend on 
wages. 

In order to decide this point, it must 
be considered, that value is a relative 
term ; that the value of a commodity is 
not a name for an inherent and sub¬ 
stantive quality of the thing itself, but 
means the quantity of other things 




ULTIMATE ANALYSIS OF COST OF PRODUCTION. 279 


•which can be obtained in exchange 
for it. The value of one thing, must 
always be understood relatively to 
some other thing, or to things in general. 
Now the relation of one thing to another 
cannot be altered by any cause which 
affects them both alike. A rise or fall 
of general wages is a fact which affects 
all commodities in the same manner, 
and therefore affords no reason why 
they should exchange for each other 
in one rather than in another propor¬ 
tion. To suppose that high wages 
make high values, is to suppose that 
there can be such a thing as general 
high values. But this is a contradic¬ 
tion in terms: the high value of some 
things is synonymous with the low 
value of others. The mistake arises 
from not attending to values, but only 
to prices. Though there is no such 
thing as a general rise of values, there 
is such a thing as a general rise of 
prices. As soon as we form distinctly 
the idea of values, we see that high or 
low wages can have nothing to do with 
them : but that high wages make high 
prices, is a popular and wide-spread 
opinion. The whole amount of error 
involved in this proposition can only 
be seen thoroughly when we come to 
the theory of money: at present we 
need only say that if it be true, there 
can be no such thing as a real rise of 
wages; for if wages could not rise 
without a proportional rise of the price 
of everything, they could not, for any 
substantial purpose, rise at all. This 
surely is a sufficient reductio ad ab- 
surdinn , and shows the amazing folly 
of the propositions which may and do 
become, and long remain, accredited 
doctrines of popular political economy. 
It must be remembered, too, that 
general high prices, even supposing 
them to exist, can be of no use to a 
producer or dealer, considered as such; 
for if they increase his money returns, 
they increase in the same degree all 
his expenses. There is no mode in 
which capitalists can compensate them¬ 
selves for a high cost of labour, through 
any action on values or prices. It 
cannot be prevented from taking its 
effect in low profits. If the labourers 
really get more, that is, get the pro¬ 


duce of more labour, a smaller per¬ 
centage must remain for profit. From 
this Law of Distribution, resting as it 
does on a law of arithmetic, there is no 
escape. The mechanism of Exchange 
and Price may hide it from us, but is 
quite powerless to alter it. 

§ 3. Although, however, general 
wages, whether high or low, do not 
affect values, yet if wages are higher 
in one employment than another, or if 
they rise or fall permanently in one 
employment without doing so in others, 
these inequalities do really operate 
upon values. The causes which make 
wages vary from one employment to 
another, have been considered in a 
former chapter. When the wages of 
an employment permanently exceed 
the average rate, the value of the 
thing produced will, in the same degree, 
exceed the standard determined by 
mere quantity of labour. Things, for 
example, which are made by skilled 
labour, exchange for the produce of a 
much greater quantity of unskilled 
labour; for no reason but because the 
labour is more highly paid. If, through 
the extension of education, the labourers 
competent to skilled employments were 
so increased in number as to diminish 
the difference between their wages 
and those of common labour, all things 
produced by labour of the superior 
kind would fall in value, compared with 
things produced by common labour, 
and these might be said therefore to 
rise in value. We have before re¬ 
marked that the difficulty of passing 
from one class of employments to a 
class greatly superior, has hitherto 
caused the wages of all those classes 
of labourers who are separated from 
one another by any very marked barrier, 
to depend more than might be sup¬ 
posed upon the increase of the popu¬ 
lation of each class, considered sepa¬ 
rately; and that the inequalities in 
the remuneration of labour are much 
greater than could exist if the com¬ 
petition of the labouring people gene¬ 
rally, could be brought practically to 
bear on each particular employment. 
It follows from this, that wages in 
different employments do not rise or 







BOOK III. CHAPTER IV. § 4. 


280 

fall simultaneously, but are, for short 
and sometimes even for long periods, 
nearly independent of one another. 
All such disparities evidently alter the 
relative cost of production of different 
commodities, and will therefore be 
completely represented in their natural 
or average value. 

It thus appears that the maxim 
laid down by some of the best political 
economists, that wages do not enter 
into value, is expressed with greater 
latitude than the truth warrants, or 
than accords with their own meaning. 
Wages do enter into value. The 
relative wages of the labour necessary 
for producing different commodities, 
affect their value just as much as the 
relative quantities of labour. It is 
true, the absolute wages paid have no 
effect upon values; but neither has 
the absolute quantity of labour. If 
that were to vary simultaneously and 
equally in all commodities, values 
would not be affected. If, for in¬ 
stance, the general efficiency of all 
labour were increased, so that all 
things without exception could be pro¬ 
duced in the same quantity as before 
with a smaller amount of labour, no 
trace of this general diminution of cost 
of production would show itself in the 
values of commodities. Any change 
which might take place in them would 
only represent the unequal degrees in 
which the improvement affected dif¬ 
ferent things; and would consist in 
cheapening those in which the saving 
of labour had been the greatest, while 
those in which there had been some, 
but a less saving of labour, would ac¬ 
tually rise in value. In strictness, 
therefore, wages of labour have as 
much to do with value as quantity of 
labour: and neither Ricardo nor any 
one else has denied the fact. In con¬ 
sidering, however, the causes of varia¬ 
tions in value, quantity of labour is 
the thing of chief importance; for 
when that varies, it is generally in 
one or a few commodities at a time, 
but the variations of wages (except 
passing fluctuations) are usually ge¬ 
neral, and have no considerable effect 
on value. 


§ 4. Thus far of labour, or wages* 
as an element in cost of production. 
But in our analysis, in the First Book, 
of the requisites of production, we found 
that there is another necessary element 
in it besides labour. There is also 
capital; and this being the result of 
abstinence, the produce, or its value, 
must be sufficient to remunerate, not 
only all the labour required, but the 
abstinence of all the persons by whom 
the remuneration of the different 
classes of labourers was advanced. 
The return for abstinence is Profit. 
And profit, we have also seen, is not 
exclusively the surplus remaining to 
the capitalist after he has been com¬ 
pensated for his outlay, but forms, in 
most cases, no unimportant part of 
the outlay itself. The flax-spinner, 
part of whose expenses consists of the 
purchase of flax and of machinery, has 
had to pay, in their price, not only the 
wages of the labour by which the flax 
was grown and the machinery made, 
but the profits of the grower, the flax- 
dresser, the miner, the iron-founder, 
and the machine-maker. All these 
profits, together with those of the spin¬ 
ner himself, were again advanced by 
the weaver, in the price of his material, 
linen yarn : and along with them the 
profits of a fresh set of machine-makers, 
and of the miners and iron-workers 
who supplied them with their metallic 
material. All these advances form 
part of the cost of production of linen. 
Profits, therefore, as well as wages, 
enter into the cost of production which 
determines the value of the produce. 

Value, however, being purely re¬ 
lative, cannot depend upon absolute 
profits, no more than upon absolute 
wages, but upon relative profits only. 
High general profits cannot, any more 
than high general wages, be a cause of 
high values, because high general values 
are an absurdity and a contradiction. 
In so far as profits enter into the cost 
of production of all things, they cannot 
affect the value of any. It is only 
by entering in a greater degree into 
the cost of production of some things 
than of others, that they can have any 
influence on value. 

For example, we have seen that. 





ULTIMATE ANALYSIS OF COST OF PEODUCv ION. 281 


there are causes which necessitate a 
permanently higher rate of profit in 
certain employments than in others. 
There must be a compensation for 
superior risk, trouble, and disagreeable¬ 
ness. This can only be obtained by 
selling the commodity at a value above 
that which is due to the quantity of 
labour necessary for its production. 
If gunpowder exchanged for other 
things in no higher ratio than that of 
the labour required from first to last 
for producing it, no one would set up 
a powder-mill. Butchers are certainly 
a more prosperous class than bakers, 
and do not seem to be exposed to 
greater risks, since it is not remarked 
that they are oftener bankrupts. They 
seem, therefore, to obtain higher pro¬ 
fits, which can only arise from the 
more limited competition caused by 
the unpleasantness, and to a certain 
degree, the unpopularity of their trade. 
But this higher profit implies that they 
sell their commodity at a higher value 
than that due to their labour and out¬ 
lay. All inequalities of profit which 
are necessary and permanent, are re¬ 
presented in the relative values of the 
commodities. 

§ 5. Profits, however, may enter 
more largely into the conditions of 
production of one commodity than of 
another, even though there be no dif¬ 
ference in the rate of profit between 
the two employments. The one com¬ 
modity may be called upon to yield 
profit during a longer period of time 
than the other. The example by which 
this case is usually illustrated is that 
of wine. Suppose a quantity of wine, 
and a quantity of cloth, made by equal 
amounts of labour, and that labour 
paid at the same rate. The cloth 
does not improve by keeping; the 
wine does. Suppose that, to attain 
the desired quality, the wine requires 
to be kept five years. The producer 
or dealer will not keep it, unless at 
the end of five years he can sell it for 
as much more than the cloth, as 
amounts to five years profit, accumu¬ 
lated at compound interest. The wine 
and the cloth were made by the same 
original outlay. Here then is a case 


in which the natural values, relatively 
to one another, of two commodities, do 
not conform to their cost of production 
alone, but to their cost of production 
plus something else. Unless, indeed, 
for the sake of generality in the ex¬ 
pression, we include the profit which 
the wine-merchant foregoes during the 
five years, in the cost of production of 
the wine: looking upon it as a kind of 
additional outlay, over and above his 
other advances, for which outlay he 
must be indemnified at last. 

All commodities made by machinery 
are assimilated, at least approximately, 
to the wine in the preceding example. 
In comparison with things made 
wholly by immediate labour, profits 
enter more largely into their cost of 
production. Suppose two commodities, 
A and B, each requiring a year for its 
production, by means of a capital 
which we will on this occasion denote 
by money, and suppose to be 1000/. 
A is made wholly by immediate labour, 
the whole 1000/. being expended di¬ 
rectly in wages. B is made by means 
of labour which costs 500/. and a ma¬ 
chine which costs 500/., and the ma¬ 
chine is worn out by one year’s use. 
The two commodities will be exactly 
of the same value ; which, it computed 
in money, and if profits are 20 per 
cent, per annum, will be 1200/. But- 
of this 1200/., in the case of A, only 
200/., or one-sixth, is profit: while in 
the case of B there is not only the 
200/., but as much of 500/. (the price 
of the machine) as consisted of the 
profits of the machine-maker; which, 
if we suppose the machine also to have 
taken a year for its production, is again 
one-sixth. So that in the case of A 
only one-sixth of the entire return is 
profit, whilst in B the element of profit 
comprises not only a sixth of the 
whole, but an additional sixth of a 
large part. 

The greater the proportion of the 
■whole capital which consists of ma¬ 
chinery, or buildings, or material, or 
anything else which must be provided 
before the immediate labour can com¬ 
mence, the more largely will profits 
enter into the cost of production. It 
is equally true, though not so obvious 




282 BOOK III. CHAPTER IV. § 5. 


at first sight, that greater durability 
in the portion of capital which consists 
of machinery or buildings, has precisely 
the same effect as a greater amount 
of it. As we just supposed one ex¬ 
treme case, of a pjachine entirely worn 
out by a year’s use, let us now suppose 
the opposite and still more extreme 
case, of a machine which lasts for ever, 
and requires no repairs. In this case, 
which is as well suited for the purpose 
of illustration as if it were a possible 
one, it will be unnecessary that the 
manufacturer should ever be repaid 
the 500/. which he gave for the ma¬ 
chine, since he has always the machine 
itself, worth 500/.; but he must be 
paid, as before, a profit on it. The 
commodity B, therefore, which in the 
case previously supposed was sold for 
1200/., of which sum 1000/. were to 
replace the capital and 200/. were 
profit, can now be sold for 700/., being 
500/. to replace wages, and 200/. profit 
on the entire capital. Profit, there¬ 
fore, enters into the value of B in the 
ratio of 200/. out of 700/., being two- 
sevenths of the whole, or 2Sf per cent, 
while in the case of A, as before, it 
enters only in the ratio of one-sixth, 
or 16§ per cent. The case is of course 
purely ideal, since no machinery or 
other fixed capital lasts for ever ; but 
the more durable it is, the nearer it 
approaches to this ideal case, and the 
more largely does profit enter into the 
return. If, for instance, a machine 
worth 500/. loses one fifth of its value 
by each year’s use, 100/. must be added 
to the return to make up this loss, and 
the price of the commodity will be 
800/. Profit therefore will enter into 
it in the ratio of 200/. to 800/., or one- 
fourth, which is still a much higher 
proportion than one-sixth, or 200/. in 
1200/., as in case A. 

From the unequal proportion in 
which, in different employments, profits 
enter into the advances of the capi¬ 
talist, and therefore into the returns 
required by him, two consequences 
follow in regard to value. One is, 
that commodities do not exchange in the 
ratio simply of the quantities of labour 
required to produce them; not even if 
we allow for the unequal rates at which 


different kinds of labour arc perma¬ 
nently remunerated. We have already 
illustrated this by the example of wine : 
we shall now further exemplify it by 
the case of commodities made by ma¬ 
chinery. Suppose, as before, an article 

A, made by a thousand pounds’ worth 
of immediate labour. But instead of 

B, made by 500/. worth of immediate 
labour and a machine worth 500/., let 
us suppose C, made by 500/. worth of 
immediate labour with the aid of a 
machine which has been produced by 
another 500/. worth of immediate la¬ 
bour: the machine requiring a year 
for making, and worn out by a year’s 
use ; profits being as before 20 per cent. 
A and C are made by equal quantities 
of labour, paid at the same rate : A costs 
1000/. worth of direct labour; C, only 
500/. worth, which however is made 
up to 1000/. by the labour expended 
in the construction of the machine. If 
labour, or its remuneration, were the 
sole ingredient of cost of production, 
these two things would exchange for 
one another. But will they do so? 
Certainly not. The machine having 
been made in a year by an outlay of 
500/., and profits being 20 per cent, 
the natural price of the machine is 
G00/.: making an additional 100/. 
which must be advanced, over and 
above his other expenses, by the 
manufacturer of C, and repaid to him 
with a profit of 20 per cent. While, 
therefore, the commodity A is sold for 
1200/., C cannot be permanently sold 
for less than 1320/. 

A second consequence is, that every 
rise or fall of general profits will have 
an effect on values. Not indeed by 
raising or lowering them generally, 
(which, as we have so often said, is a 
contradiction and an impossibility): 
but by altering the proportion in which 
the values of things are affected by 
the unequal lengths of time for which 
profit is due. When two things, 
though made by equal labour, are of 
unequal value because the one is called 
upon to yield profit for a greater num¬ 
ber of years or months than the other; 
this difference of value will he greater 
when profits are greater, and less when 
they are less. The wine which has to 




ultimate analysis of 

yield five years profit more than the 
cloth, will surpass it in value much more 
if profits are 40 per cent, than if they 
arc only 20. The commodities A and 
C, which, though made by equal quan¬ 
tities of labour, were sold for 1200/. 
and 1320/., a difference of 10 per cent, 
would, if profits had been only half as 
much, have been sold for 1100/. and 
1155/., a difference of only 5 per cent. 

It follows from this, that even a 
general rise of wages, when it involves 
a real increase in the cost of labour, 
does in some degree influence values. 
It does not affect them in the manner 
vulgarly supposed, by raising them 
universally. But an increase in the 
cost of labour, lowers profits; and 
therefore lowers in natural value the 
things into which profits enter in a 
greater proportion than the average, 
and raises those into which they enter 
in a less proportion than the average. 
All commodities in the production of 
which machinery bears a large part, 
especially if the machinery is very 
durable, are lowered in their relative 
value when profits fall; or, what is 
equivalent, other things are raised in 
value relatively to them. This truth 
is sometimes expressed in a phrase¬ 
ology more plausible than sound, by 
saying that a rise of wages raises the 
value of things made by labour, in 
comparison with those made by ma¬ 
chinery. But things made by ma¬ 
chinery, just as much as any other 
things, are made by labour, namely 
the labour which made the machinery 
itself: the only difference being that 
profits enter somewhat more largely 
into the production of things for which 
machinery is used, though the prin¬ 
cipal item of the outlay is still labour. 
It is better, therefore, to associate the 
effect with fall of profits than with rise 
of wages; especially as this last ex¬ 
pression is extremely ambiguous, sug¬ 
gesting the idea of an increase of the 
labourer’s real remuneration, rather 
than of what is alone to the purpose 
here, namely, the cost of labour to its 
employer. 

§ 6. Besides the natural and ne¬ 
cessary elements in cost of production 


COST OF PRODUCTION. 283 

—labour and profits—there are others 
which are artificial and casual, as for 
instance a tax. The tax on malt is 
as much a part of the cost of produc¬ 
tion of that article, as the wages of 
the labourers. The expenses which 
the law imposes, as well as those which 
the nature of things imposes, must be 
reimbursed with the ordinary profit 
from the value of the produce, or the 
things will not continue to be produced. 
But the influence of taxation on value 
is subject to the same conditions as 
the influence of wages and of profits. 
It is not general taxation, but differ¬ 
ential taxation, that produces the 
effect. If all productions were taxed 
so as to take an equal percentage from 
all profits, relative values would be in 
no way disturbed. If only a few com¬ 
modities were taxed, their value would 
rise : and if only a few were left un¬ 
taxed, their value would fall. If half 
were taxed and the remainder untaxed, 
the first half would rise and the last 
would fall relatively to each other. 
This would be necessary in order to 
equalize the expectation of profit in 
all employments, without which the 
taxed employments would ultimately, 
if not immediately, be abandoned. 
But general taxation, when equally 
imposed, and not disturbing the re¬ 
lations of different productions to one 
another, cannot produce any effect on 
values. 

We have thus far supposed that all 
the means and appliances which enter 
into the cost of production of com¬ 
modities, are things whose own value 
depends on their cost of production. 
Some of them, however, may belong to 
the class of things which cannot be 
increased ad libitum in quantity, and 
which therefore, if the demand goes 
beyond a certain amount, command a 
scarcity value. The materials of many 
of the ornamental articles manufac¬ 
tured in Italy are the substances called 
rosso, giallo, and verde antico, which, 
whether truly or falsely I know not, 
are asserted to be solely derived from 
the destruction of ancient columns 
and other ornamental structures: the 
quarries from which the stone was 
originally cut being exhausted, or their 



284 BOOK III. CHAPTER IV. § 6. 


locality forgotten.* A material of 
such a nature, if in much demand, 
must he at a scarcity value ; and this 
value enters into the cost of produc¬ 
tion, and, consequently, into the value, 
of the finished article. The time seems 
to he approaching when the more 
valuable furs will come under the 
influence of a scarcity value of the 
material. Hitherto the diminishing 
number of the animals which produce 
them, in the wildernesses of Siberia and 
on the coasts of the Esquimaux Sea, 
has operated on the value only through 
the greater labour which has become 
necessary for securing any given quan¬ 
tity of the article; since, without 
doubt, by employing labour enough, it 
might still be obtained in much greater 
abundance for some time longer. 

But the case in which scarcity value 
chiefly operates in adding to cost of 
production, is the case of natural 
agents. These, when unappropriated, 
and to be had for the taking, do not 
enter into cost of production, save to 
the extent of the labour which maybe 
necessary to fit them for use. Even 
when appropriated, they do not (as we 
have already seen) bear a value from 
the mere fact of the appropriation, lut 
only from scarcity, that is, from limi¬ 
tation of supply. But it is equally 
certain that they often do bear a scar¬ 
city value. Suppose a fall of water, 
in a place where there are more mills 
wanted than there is water-power to 
supply them ; the use of the fall of 
water will have a scarcity value, suffi¬ 
cient either to bring the demand down 
to the supply, or to pay for the creation 
of an artificial power, by steam or 
otherwise, equal in efficiency to the 
water-power. 

* Some of these quarries, I believe, have 
been rediscovered, and are again worked. 


A natural agent being a possession 
in perpetuity, and being only service¬ 
able by the products resulting from its 
continued employment, the ordinary 
mode of deriving benefit from its 
ownership is by an annual equivalent, 
paid by the person who uses it, from 
the proceeds of its use. This equiva¬ 
lent always might be, and generally is, 
termed rent. The question therefore, 
respecting the influence which the ap¬ 
propriation of natural agents produces 
on values, is often stated in this form : 
Hoes Rent enter into Cost of Produc¬ 
tion ? and the answer of the best poli¬ 
tical economists is in the negative. 
The temptation is strong to the adop¬ 
tion of these sweeping expressions, 
even by those who are aware of the 
restrictions with which they must be 
taken; for there is no denying that 
they stamp a general principle more 
firmly on the mind, than if it were 
hedged round in theory with all its 
practical limitations. But they also 
puzzle and mislead, and create an im¬ 
pression unfavourable to political eco¬ 
nomy’, as if it disregarded the evidence 
of facts. jNo one can deny that rent 
sometimes enters into c<sst of produc¬ 
tion. If I buy r or rent a piece of ground, 
and build a cloth manufactory on it, 
the ground-rent forms legitimately a 
part of my expenses of production, 
which must be repaid by the product. 
And since all factories are built on 
ground, and most of them in places 
where ground is peculiarly valuable, 
the rent paid for it must, on the ave¬ 
rage, be compensated in the values of 
all things made in factories. In what 
sense it is true that rent does not enter 
into the cost of production or affect the 
value of agricultural produce, will be 
shown in the succeeding chapter. 




RENT IN ITS RELATION TO VALUE. 


285 


CHAPTER V. 

OF RENT, IN ITS RELATION TO VALUE. 


§ 1. We have investigated the 
laws which determine the value of two 
classes of commodities: the small 
class which, being limited to a definite 
quantity, have their value entirely de¬ 
termined by demand and supply, save 
that their cost of production (if they 
have any) constitutes a minimum below 
which they cannot permanently fall; 
and the large class, which can be mul¬ 
tiplied ad libitum by labour and capital, 
and of which the cost of production 
fixes the maximum as well as the 
minimum at which they can perma¬ 
nently exchange. But there is still a 
third kind of commodities to be con¬ 
sidered: those which have, not one, 
but several costs of production ; which 
can always be increased in quantity by 
labour and capital, but not by the 
same amount of labour and capital; of 
which so much may be produced at a 
given cost, but a further quantity not 
without a greater cost. These com¬ 
modities form an intermediate class, 
partaking of the character of both the 
others. The principal of them is agri¬ 
cultural produce. We have already 
made abundant reference to the funda¬ 
mental truth, that in agriculture, the 
state of the art being given, doubling 
the labour does not double the produce ; 
that if an increased quantity of produce 
is required, the additional supply is 
obtained at a greater cost than the 
first. Where a hundred quarters of 
corn are all that is at present required 
from the lands of a given village, if 
the growth of population made it ne¬ 
cessary to raise a hundred more, either 
by breaking up worse land now uncul¬ 
tivated, or by a more elaborate cultiva¬ 
tion of the land already under the 
plough, the additional hundred, or 
some part of them at least, might cost 
double or treble as much per quarter 
as the former supply. 

If the first hundred quarters were 
all raised at the same expense (only 


the best land being cultivated): and if 
that expense would be remunerated 
with the ordinary profit by a juice of 
20-s. the quarter; the natural price of 
wheat, so long as no more than that 
quantity was required, would be 20s.; 
and it could only rise above, or fall 
below that price, from vicissitudes of 
seasons, or other casual variations in 
supply. But if the population of the 
district advanced, a time would arrive 
when more than a hundred quarters 
would be necessary to feed it. We 
must suppose that there is no access 
to any foreign supply. By the hypo¬ 
thesis, no more than a hundred quarters 
can be produced in the district, unless 
by either bringing worse land into cul¬ 
tivation, or altering the system of 
culture to a more expensive one. 
Neither of these things will be done 
without a rise in price. This rise of 
price will gradually be brought about 
by the increasing demand. So long 
as the price has risen, but not risen 
enough to repay with the ordinary 
profit the cost of producing an addi¬ 
tional quantity, the increased value of 
the limited supply partakes of the 
nature of a scarcity value. Suppose 
that it will not answer to cultivate the 
second best land, or land of the second 
degree of remoteness, for a less return 
than 2os. the quarter; and that this 
price is also necessary to remunerate 
the expensive operations by which an 
increased produce might be raised 
from land of the first quality. If so, 
the price will rise, through the increased 
demand, until it reaches 25 s. That 
will now be the natural price ; being 
the price without which the quantity, 
for which society has a demand at 
that price, will not be produced. At 
that price, however, society can go on 
for some time longer; could go on 
perhaps for ever, if population did not 
increase. The price, having attained 
1 that point, will not again permanently 



BOOK III. CHAPTER V. § 2. 


286 

recede (though it may fall temporarily 
from accidental abundance); nor will 
it advance further, so long as society 
can obtain the supply it requires with¬ 
out a second increase of the cost of 
production. 

I have made use of Price in this 
reasoning, as a convenient symbol of 
Value, from the greater familiarity of 
the idea; and I shall continue to do 
so as far as may appear to be necessary. 

In the case supposed, different por¬ 
tions of the supply of corn have dif¬ 
ferent. costs of production. Though 
the 20, or 50, or 150 quarters addi¬ 
tional have been produced at a cost 
proportional to 25s., the original hun¬ 
dred quarters per annum are still pro¬ 
duced at a cost only proportional to 
20s. This is self-evident, if the original 
and the additional supply are produced 
on different qualities of land. It is 
equally true if they are produced on 
the same land. Suppose that land of 
the best quality, which produced 100 
quarters at 20s., has been made to 
produce 150 by an expensive process, 
which it would not answer to under¬ 
take without a price of 25s. The cost 
which requires 25s. is incurred for the 
sake of 50 quarters alone : the first 
hundred might have continued for ever 
to be produced at the original cost, 
and with the benefit, on that quantity, 
of the whole rise of price caused by 
the increased demand: no one, there¬ 
fore, will incur the additional expense 
for the sake of the additional fifty, 
unless they alone will pay for the 
whole of it. The fifty, therefore, will 
be produced at their natural price, 
proportioned to the cost of their pro¬ 
duction : while the other hundred will 
now bring in 5s. a quarter more than 
their natural price—than the price 
corresponding to, and sufficing to re¬ 
munerate, their lower cost of pro¬ 
duction. 

If the production of any, even the 
smallest, portion of the supply, re¬ 
quires as a necessary condition a 
certain price, that price will be ob¬ 
tained for all the rest. We are not 
able to buy one loaf cheaper than 
another because the corn from which 
it was made, being grown on a richer 


soil, has cost less to the grower. The' 
value, therefore, of an article (meaning 
its natural, which is the same with its 
average value) is determined by the 
cost of that portion of the supply 
which is produced and brought to 
market at the greatest expense. This 
is the Law of Value of the third of 
the three classes into which all com¬ 
modities are divided. 

§ 2. If the portion of produce raised 
in the most unfavourable circumstances, 
obtains a value proportioned to its cost 
of production ; all the portions raised 
in more favourable circumstances, sell¬ 
ing as they must do at the same value, 
obtain a value more than proportioned 
to their cost of production. Their value 
is not, correctly speaking, a scarcity 
value, for it is determined by the cir¬ 
cumstances of the production of the 
commodity, and not by the degree of 
dearness necessary for keeping down 
the demand to the level of a limited 
supply. The owners, however', of those 
portions of the produce enjoy a pri¬ 
vilege ; they obtain a value which 
yields them more than the ordinary 
profit. If this advantage depends upon 
any special exemption, such as being 
free from a tax, or upon any personal 
advantages, physical or mental, or 
any peculiar process only known to 
themselves, or upon the possession of 
a greater capital than other people, 
or upon various other things which 
might be enumerated, they retain it to 
themselves as an extra gain, over and 
above the general profits of capital, of 
the nature, in some sort, of a monopoly 
profit. But when, as in the case 
which we are more particularly con¬ 
sidering, the advantage depends on 
the possession of a natural agent of 
peculiar quality, as, for instance, of 
more fertile land than that which 
determines the general value of the 
commodity; and when this natural 
agent is not owned by themselves; 
the person who does own it, is able to 
exact from them, in the form of rent, 
the whole extra gain derived from its 
use. We are thus brought by another 
road to the Law of Rent, investigated 
in the concluding chapter of the Second 




RENT IN ITS RELATION TO VALUE. 


Book. Rent, we again see, is the 
difference between the unequal returns 
to different parts of the capital em¬ 
ployed on the soil. Whatever surplus 
any portion of agricultural capital 
produces, beyond what is produced by 
the same amount of capital on the 
worst soil, or under the most expensive 
mode of cultivation, which the existing 
demands of society compel a recourse 
to ; that surplus will naturally be paid 
as rent from that capital, to the owner 
of the land on which it is employed. 

It was long thought by political 
economists, among the rest even by 
Adam Smith, that the produce of land 
is always at a monopoly value, because 
(they said) in addition to the ordinary 
rate of profit, it always yields some¬ 
thing further for rent. This we now 
see to be erroneous. A thing cannot 
be at a monopoly value, when its supply 
can be increased to an indefinite ex¬ 
tent if we are only willing to incur the 
cost. If no more corn than the exist¬ 
ing quantity is grown, it is because 
the value has not risen high enough to 
remunerate any one for growing it. 
Any land (not reserved for other uses, 
or for pleasure) which at the existing 
price, and by the existing processes, 
will yield the ordinary profit, is tole¬ 
rably certain, unless some artificial 
hindrance intervenes, to be cultivated, 
although nothing may be left for rent. 
As long as there is any land fit for 
cultivation, which at the existing price 
cannot be profitably cultivated at all, 
there must be some land a little better, 
which will yield the ordinary profit, 
but allow nothing for rent: and that 
land, if within the boundary of a farm, 
will be cultivated by the farmer; if 
not so, probably by the proprietor, or 
by some other person on sufferance. 
Some such land at least, under culti¬ 
vation, there can scarcely fail to be. 

Rent, therefore, forms no part of the 
cost of production which determines 
the value of agricultural produce. 
Circumstances no doubt may be con¬ 
ceived in which it might do so, and 
very largely too. We can imagine 
a country so fully peopled, and with all 
its cultivable soil so completely occu¬ 
pied, that to produce any additional 


287 

quantity would require more labour' 
than the produce would feed: and if 
we suppose this to be the condition of 
the whole world, or of a country de¬ 
barred from foreign supply, then, if 
population continued increasing, both 
the land and its produce would really 
rise to a monopoly or scarcity price. 
But this state of things never can have 
really existed anywhere, unless pos¬ 
sibly in some small island cut off from 
the rest of the world ; nor is there any 
danger whatever that it should exist. 
It certainly exists in no known region 
at present. Monopoly, we have seen, 
can take effect on value, only through 
limitation of supply. In all countries 
of any extenff there is more cultivable 
land than is yet cultivated : and while 
there is any such surplus, it is the 
same thing, so far as that quality of 
land is concerned, as if there were an 
indefinite quantity. What is prac¬ 
tically limited in supply is only the 
better qualities ; and even for those, so 
much rent cannot be demanded as 
would bring in the competition of the 
lands not yet in cultivation; the rent 
of a piece of land must be somewhat 
less than the whole excess of its pro¬ 
ductiveness over that of the best land 
which it is not yet profitable to cul¬ 
tivate ; that is, ft must be about equal 
to the excess above the worst land 
which it is profitable to cultivate. The 
land or the capital most unfavourably 
circumstanced among those actually 
employed, pays no rent; and that land 
or capital determines the cost of pro¬ 
duction which regulates the value of 
the whole produce. Thus rent is, as 
we have already seen, no cause of value, 
but the price of the privilege which 
the inequality of the returns to difierent 
portions of agricultural produce confers 
on all except the least favoured portion. 

Rent, in short, merely equalizes the 
profits of difierent farming capitals, by 
enabling the landlord to appropriate 
all extra gains occasioned by supe¬ 
riority of natural advantages. If all 
landlords were unanimously to forego- 
their rent, they would but transfer it 
to the farmers, without benefiting the 
consumer; for the existing price of 
corn would still be an indispensable 



288 BOOK III. CHAPTER V. § 3 . 


condition of the production of part of 
the existing supply, and if a part 
obtained that price the whole would 
obtain it. Rent, therefore, unless 
artificially increased by restrictive 
laws, is no burthen on the consumer; 
it does not raise the price of corn, and 
is no otherwise a detriment to the 
public, than inasmuch as if the state had 
retained it, or imposed an equivalent 
in the shape of a land-tax, it would 
then have been a fund applicable to 
general instead of private advantage. 

§ 3. Agricultural productions are 
not the only commodities which have 
several different costs of production at 
once, and which, in oonsequence of 
that difference, and in proportion to it, 
afford a rent. Mines are also an in¬ 
stance. Almost all kinds of raw material 
extracted from the interior of the earth 
—metals, coals, precious stones, &c., 
are obtained from mines differing con¬ 
siderably in fertility, that is, yielding 
very different quantities of the product 
to the same quantity of labour and 
capital. This being the case, it is an 
obvious question, why are not the most 
fer;ile mines so worked as to supply 
the whole market ? No such question 
can arise as to land; it being self- 
evident, that the most fertile lands 
could not possibly be made to supply 
the whole demand of a fully-peopled 
country ; and even of what they do 
yield, a part is extorted from them by 
a labour and outlay as great as that 
required to grow the same amount on 
worse land. But it is not so with 
mines; at least, not universally. There 
are, perhaps, cases in which it is im¬ 
possible to extract from a particular 
vein, in a given time, more than a 
certain quantity of ore, because there 
is only a limited surface of the vein 
exposed, on which more than a certain 
number of labourers cannot be simul¬ 
taneously employed. But this is not 
true of all mines. In collieries, for 
example, some other cause of limita¬ 
tion must be sought for. In some 
Instances the owners limit the quan¬ 
tity raised, in order not too rapidly to 
exhaust the mine : in others there are 
said to be combinations of owners, to 


keep-up a monopoly price by limiting 
the production. Whatever be the 
causes, it is a fact that mines of dif¬ 
ferent degrees of richness are in opera¬ 
tion, and since the value of the pro¬ 
duce must be proportional to the cost 
of production at the worst mine (fer¬ 
tility and situation taken together), it 
is more than proportional to that of 
the best. All mines superior in pro¬ 
duce to the worst actually -worked, will 
yield, therefore, a rent equal to the 
excess. They may yield more; and 
the worst mine may itself yield a rent. 
Mines being comparatively few, their 
qualities do not graduate gently into 
one another, as the qualities of land 
do ; and the demand may be such as to 
keep the value of the produce con¬ 
siderably above the cost of production 
at the worst mine now worked, with¬ 
out being sufficient to bring into opera¬ 
tion a still worse. During the interval, 
the produce is really at a scarcity 
value. 

Fisheries are another example. Fish¬ 
eries in the open sea are not appro¬ 
priated, but fisheries in lakes or rivers 
almost always are so, and likewise 
oyster-beds or other particular fishing 
grounds on coasts. We may take 
salmon fisheries as an example of the 
whole class. Some rivers are far more 
productive in salmon than others. 
None, however, without being ex¬ 
hausted, can supply more than a very 
limited demand. The demand of a 
country like England can only be sup¬ 
plied by taking salmon from many 
different rivers of unequal productive¬ 
ness, and the value must be sufficient 
to repay the cost of obtaining the fish 
from the least productive of these. All 
others, therefore, will if appropriated 
afford a rent equal to the value of their 
superiority. Much higher than this it 
cannot be, if there are salmon rivers 
accessible which from distance or in¬ 
ferior productiveness have not yet con¬ 
tributed to supply the market. If 
there are not, the value, doubtless, may 
rise to a scarcity rate, and the worst 
fisheries in use may then yield a con¬ 
siderable rent. 

Both in the case of mines and of 
fisheries, the natural order of events is 





RENT IN ITS RELATION TO VALUE. 289 


liable to be interrupted by the opening 
of a new mine, or a new fishery, of 
superior quality to some of those 
already in vise. The first effect of such 
an incident is an increase of the supply; 
which of course lowers the value to 
call forth an increased demand. This 
reduced value may be no longer suf¬ 
ficient to remunerate the worst of the 
existing mines or fisheries, and these 
may consequently be abandoned. If 
the superior mines or fisheries, with 
the addition of the one newly opened, 
produce as much of the commodity as 
is required at the lower value corre¬ 
sponding to their lower cost of produc¬ 
tion, the fall of value will bo permanent, 
and there will be a corresponding fall 
in the rents of those mines or fisheries 
which are not abandoned. In this 
case, when things have permanently 
adjusted themselves,Uhe result will be, 
that the scale of qualities which supply 
the market will have been cut short at 
the lower end, while a new insertion 
will have been made in the scale at 
some point higher up ; and the worst 
mine or fishery in use—the one which 
regulates the rents of the superior 
qualities and the value of the com¬ 
modity—will be a mine or fishery of 
better quality than that by which 
they -were previously regulated. 

Land is used for other purposes 
than agriculture, especially for resi¬ 
dence ; and wdien so used, yields a 
rent, determined by principles similar 
to those already laid down. The 
ground rent of a building, and the rent 
of a garden or park attached to it, will 
not be less than the rent which the 
same land would afford in agriculture : 
but may be greater than this to an 
indefinite amount: the surplus being 
either in consideration of beauty or of 
convenience, the convenience often 
consisting in superior facilities for 
pecuniary gain. Sites of remarkable 
beauty are generally limited in supply, 
and therefore, if in great demand, are 
at a scarcity value. Sites superior 
only in convenience, are governed as to 
their value by the ordinary principles 
of rent. The ground rent of a house 
in a small village is but little higher 
than the rent of a similar patch of 

r.E. 


ground in the open fields : but that of 
a shop in Cheapside will exceed these, 
by the whole amount at which people 
estimate the superior facilities of money¬ 
making in the more crowded place. 
The rents of wharfage, dock and 
harbour room, water-power, and many 
other privileges, may be analysed on 
similar principles. 

§ 4. Cases of extra profit analogous 
to rent, are more frequent in the trans¬ 
actions of industry than is sometimes 
supposed. Take the case, for example, 
of a patent, or exclusive privilege for 
the use of a process by which cost of 
production is lessened. If the value of 
the product continues to be regulated 
by what it costs to those who are 
obliged to persist in the old process, 
the patentee will make an extra protit 
equal to the advantage which his pro¬ 
cess possesses over theirs. This extra 
profit is essentially similar to rent, and 
sometimes even assumes the form of 
it; the patentee allowing to other pro¬ 
ducers the use of his privilege, in con¬ 
sideration of an annual payment. So 
long as he, and those whom he asso¬ 
ciates in the privilege, do not produce 
enough to supply the whole market, so 
long the original cost of production, 
being the necessary condition of pro¬ 
ducing a part, will regulate the value 
of the wdiole ; and the patentee will be 
enabled to keep up his rent to a full 
equivalent for the advantage which 
his process gives him. In the com¬ 
mencement indeed he will probably 
forego a part of this advantage for the 
sake of underselling others: the in¬ 
creased supply which he brings for¬ 
ward will lower the value, and make 
the trade a bad one for those who do 
not share in the privilege: many of 
whom therefore will gradually retire, 
or restrict their operations, or enter 
into arrangements with the patentee. 
As his supply increases theirs will 
diminish, the value meanwhile con¬ 
tinuing slightly depressed. But if he 
stops short in his operations before the 
market is wholly supplied by the new 
process, things will again adjust them¬ 
selves to what was the natural value 
before the invention was made, and 

U 



BOOK III. CHAPTER VI. § 1. 


290 

tlie benefit of the improvement will 
accrue solely to the patentee. 

The extra gains which any producer I 
or dealer obtains through superior ta¬ 
lents for business, or superior business 
arrangements, are very much of a 
similar kind. If all his competitors 
had the same advantages, and used 
them, the benefit would be transferred 
to their customers, through the dimi¬ 
nished value of the article: he only 
retains it for himself because he is 
able to bring his commodity to market 
at a lower cost, while its value is deter¬ 
mined by a higher. All advantages, 
in fact, which one competitor has over 
another, whether natural or acquired, 
whether personal or the result of social 
arrangements, bring the commodity, so 
far, into the Third Class, and assimilate 
the possessor of the advantage to a 
receiver of rent. Wages and profits 
represent the universal elements in 
production, while rent may be taken 
to represent the differential and pecu¬ 
liar: any difference in favour of certain 
producers, or in favour of production in 
certain circumstances, being the source 
of a gain, which, though not called i 


rent unless paid periodically by one 
person to another, is governed by laws 
entirely the same with it. The price 
paid for a differential advantage in 
producing a commodity, cannot enter 
into the general cost of production of 
the commodity. 

A commodity may, no doubt, in 
some contingencies, yield a rent even 
under the most disadvantageous cir¬ 
cumstances of its production ; but only 
when it is, for the time, in the condi¬ 
tion of those commodities which are 
absolutely limited in supply, and is 
therefore selling at a scarcity value ; 
which never is, nor has been, nor can 
be, a permanent condition of any of the 
great rent-yielding commodities : un¬ 
less through their approaching exhaus¬ 
tion, if they are mineral products (coal, 
for example), or through an increase of 
population, continuing after a further 
increase of production becomes im¬ 
possible ; a contingency, which the 
almost inevitable progress of human 
culture and improvement in the long 
interval which has first to elapse, for¬ 
bids us to consider as probable. 


CHAPTER VI. 

SUMMARY OF THE THEORY OF VALUE. 


§ 1. We have now attained a favour¬ 
able point for looking back, and taking 
a simultaneous view of the space which 
we have traversed since the commence¬ 
ment of the present Book. The 
following are the principles of the 
theory of Value, so far as we have yet 
ascertained them. 

I. Value is a relative term. The 
value of a thing means the quantity of 
some other thing, or of things in 
general, which it exchanges for. The 
values of all things can never, there¬ 
fore, rise or fall simultaneously. There 
is no such thing as a general rise or a 
general fall of values. Every rise of va¬ 
lue supposes a fall, and every fall a rise. 

II. The temporary or market value 


of a thing depends on the demand and 
supply; rising as the demand rises, 
and falling as the supply rises. The 
demand, however, varies with the 
value, being generally greater when 
the thing is cheap than when it is 
dear; and the value always adjusts 
itself in such a manner, that the demand 
is equal to the supply. 

III. Besides their temporary value, 
things have also a permanent, or as it 
may be called, a Natural Value, to 
which the market value, after every 
variation, always tends to return ; and 
the oscillations compensate for one 
another, so that, on the average, com¬ 
modities exchange at about their natural 
value. 








SUMMARY OF THE THEORY OF VALUE. 


IV. The natural value of some tilings 
is a scarcity value : but most tilings 
naturally exchange for one another in 
the ratio of their cost of production, or at 
what may he termed their Cost Value. 

V. The things which are naturally 
and permanently at a scarcity value, 
are those of which the supply cannot 
he increased at all, or not sufficiently 
to satisfy the whole of the demand 
which would exist for them at their 
cost value. 

VI. A monopoly value means a 
scarcity value. Monopoly cannot give 
a value to anything, except through a 
limitation of the supply. 

VII. Every commodity of which the 
supply can be indefinitely increased by 
labour and capital, exchanges for other 
things proportionally to the cost neces¬ 
sary for producing and bringing to 
market the most costly portion of the 
supply required. The natural value is 
synonymous with the Cost Value, and 
the cost value of a thing, means the cost 
value of the most costly portion of it. 

VIII. Cost of Production consists of 
several elements, some of which are 
constant and universal, others occa¬ 
sional. The universal elements of 
cost of production are, the wages of the 
labour, and the profits of the capital. 
The occasional elements are, taxes, 
and any extra cost occasioned by a 
scarcity value of some of the requisites. 

IX. Rent is not an element in the 
cost of production of the commodity 
which yields it: except in the cases, 
(rather conceivable than actually exist¬ 
ing) in which it results from, and repre¬ 
sents, a scarcity value. But when 
land capable of yielding rent in agri¬ 
culture is applied to some other pur¬ 
pose, the rent which it would have 
yielded is an element in the cost of pro¬ 
duction of the commodity which it is 
employed to produce. 

X. Omitting the occasional elements; 
things which admit of indefinite in¬ 
crease, naturally and permanently ex¬ 
change for each other according to the 
comparative amount of wages which 
must be paid for producing them, and 
the comparative amount of profits 
which must be obtained by the capi¬ 
talists who pay those wages. 


XI. The comparative amount of 
wages does not depend on what wages 
are in themselves. High wages do 
not make high values, nor low wages 
low values. The comparative amount 
of wages depends partly on the com¬ 
parative quantities of labour required, 
and partly on the comparative rates of 
its remuneration. 

XII. So, the comparative rate of 
profits does not depend on what profits 
are in themselves ; nor do high or low- 
profits make high or low values. It 
depends partly on the compai’ative 
lengths of time during which the capital 
is employed, and partly on the com¬ 
parative rate of profits in different eix. 
ployments. 

XIII. If two things are made by the 
same quantity of labour, and that labour 
paid at the same rate, and if the wages 
of the labourer have to be advanced 
for the same space of time, and the 
nature of the employment does not 
require that there be a permanent 
difference in their rate of profit; then, 
whether wages and profits be high or 
low, and whether the quantity of labour 
expended be much or little, these two 
things will, on the average, exchange 
for one another. 

XIV. If one of the two things com¬ 
mands, on the average, a greater value 
than the other, the cause must be that 
it requires for its production either a 
greater quantity of labour, or a kind of 
labour permanently paid at a highef 
rate ; or that the capital, or part of tli« 
capital, which supports that labour, 
must be advanced for a longer period ; 
or lastly, that the production is attended 
with some circumstance which requires 
to be compensated by a permanently 
higher rate of profit. 

XV. Of these elements, the quantity 
of labour required for the production is 
the most important : the effect of the 
others is smaller, though none of them 
are insignificant. 

XVI. The lower profits are, the less 
important become the minor elements 
of cost of production, and the less do 
commodities deviate from a value pro¬ 
portioned to the quantity and quality 
of the 'labour required for their pro¬ 
duction. 


U 2 



292 BOOK HI. CIL 

XVII. But every fall of profits lowers, 
in some degree, the cost value of things 
made with much or durable machinery, 
and raises that of things made by 
hand; and every rise of profits does 
the reverse. 

§ 2. Such is the general theory of 
Exchange Value. It is necessary, 
however, to remark that this theory 
contemplates a system of production 
carried on by capitalists for profit, 
and not by labourers for subsistence. 
In proportion as we admit this last 
supposition—and in most countries 
we must admit it, at least in re¬ 
spect of agricultural produce, to a 
very great extent—such of the pre¬ 
ceding theorems as relate .to the de¬ 
pendence of value on cost of produc¬ 
tion will require modification. Those 
theorems arc all grounded on the sup¬ 
position, that the producer’s object 
and aim is to derive a profit from 
his capital. This granted, it follows 
that he must sell his commodity at 
the price which will afford the ordi¬ 
nary rate of profit, that is to say, it 
must exchange for other commodities 
at its cost value. But the peasant 
proprietor, the metayer, and even the 
peasant-farmer or allotment-holder— 
the labourer, under whatever name, pro¬ 
ducing on his own account—is seeking, 
not an investment for his little capital, 
but an advantageous employment for 
his time and labour. His disburse¬ 
ments, beyond his own maintenance 
and that of his family, are so small, 
that nearly the whole proceeds of the 
sale of the produce are wages of labour. 
Vlien he and his family have been 
fed from the produce of the farm (and 
perhaps clothed with materials grown 
thereon, and manufactured in the 
family) he may, in respect of the sup¬ 
plementary remuneration derived from 
the sale of the surplus produce, be 
compared to those labourers who, de¬ 
riving their subsistence from an in¬ 
dependent source, can afi'ord to sell 
their labour at any price which is to 
their minds worth the exertion. A 
peasant, who supports himself and his 
family with one portion of his produce, 
will often sell the remainder very much 


VPTER VI. § 2. 

below what would be its cost value to 
the capitalist. 

There is, however, even in this case, 
a minimum, or inferior limit, of value. 
The produce which he carries to market, 
must bring in to him the value of 
all necessaries which he is compelled 
t-o purchase; and it must enable him 
to pay his rent. Bent, under peasant 
cultivation, is not governed by the 
principles set forth in the chapters 
immediately preceding, but is either 
determined by custom, as in the case 
of metayers, or, if fixed by competition, 
depends on the ratio of population to 
land. Bent, therefore, in this case, is 
an element of cost of production. The 
peasant must work until he has cleared 
his rent and the price of all purchased 
necessaries. After this, he will go on 
working only if he can sell the produce 
for such a price as will overcome his 
aversion to labour. 

The minimum just mentioned is 
what the peasant must obtain in ex¬ 
change for the whole of his surplus 
produce. But inasmuch as this surplus 
is not a fixed quantity, but may be 
either greater or less according to the 
degree of his industry, a minimum 
value for the whole of it does not give 
any minimum value for a definite 
quantity of the commodity. In this 
state of things, therefore, it can hardly 
be said, that the value depends at all 
on cost of production. It depends 
entirely on demand and supply, that is, 
on the proportion between the quantity 
of surplus food which the peasants 
choose to produce, and the numbers of 
the non-agricultural, or rather of the 
non-peasant population. If the buying 
class were numerous and the glowing 
class lazy, food might be permanently 
at a scarcity price. I am not aware 
that this case has anywhere a real 
existence. If the growing class is 
energetic and industrious, and the 
buyers few, food will be extremely 
cheap. This also is a rare case, though 
some parts of France perhaps approxi¬ 
mate to it. The common cases are, 
either that, as in Ireland until lately, 
the peasant class is indolent and the 
buyers few, or the peasants industrious 
and the town population numerous and 




MONEY. 


opulent, as in Belgium, the north of 
Italy, and parts of Germany. The 
price of the produce will adjust itself 
to these varieties of circumstances, un¬ 
less modified, as in many cases it is, 
by the competition of producers who 
are not peasants, or by the prices of 
foreign markets. 

§ 3. Another anomalous case is that 
of slave-grown produce: which pre¬ 
sents, however, by no means the same 
degree of complication. The slave¬ 
owner is a capitalist, and his induce¬ 
ment to production consists in a profit 
on his capital. This profit must amount 
to the ordinary rate. In respect to his 
expenses, he is in the same position as 
if his slaves were free labourers working 
with their present efficiency, and were 
hired with wages equal to their present 
cost. If the cost is less in proportion 
to the work done, than the wages of 
free labour would be, so much the 
greater are his profits : but if all other ! 
producers in the country possess the 
same advantage, the values of corn- 


293 

modifies will not be at all affected by 
it. The only case in which they can 
be affected, is when the privilege of 
cheap labour is confined to particular 
branches of production, free labourers 
at proportionally higher wages being 
employed in the remainder. In this 
case, as in all cases of permanent in¬ 
equality between the wages of different 
employments, prices and values receive 
the impress of the inequality. Slave- 
grown will exchange for non-slave- 
grown commodities in a less ratio than 
that of the quantity of labour required 
for their production; the value of the 
former will be less, of the latter greater, 
than if slavery did not exist. 

The further adaptation of the theory 
of value to the varieties of existing or 
possible industrial systems may be left 
with great advantage to the intelligent 
reader. It is well said by Montesquieu, 
“It is not always advisable so com¬ 
pletely to exhaust a subject, as to leave 
! nothing to be done by the reader. The 
important thing is not to be read, but 
to excite the reader to thought.”* 


CHAPTER VII. 


OF MONEY. 


§ 1. Having proceeded thus far in 
ascertaining the general laws of Value, 
without introducing the idea of money 
(except occasionally for illustration), 
it is time that we should now superadd 
that idea, and consider in what man¬ 
ner the principles of the mutual inter¬ 
change of commodities are affected by 
the use of what is termed a Medium of 
Exchange. 

In order to understand the manifold 
functions of a Circulating Medium, 
there is no better way than to con¬ 
sider what are the principal incon¬ 
veniences which we should experience 
if we had not such a medium. The 
first and most obvious would be the 
want of a common measure for values 
of different sorts. If a tailor had only 
coats, and wanted to buy bread or a 


horse, it would bo very troublesome to 
ascertain how much bread he ought to 
obtain for a coat, or how many coats 
he should give for a horse. The calcu¬ 
lation must be recommenced on dif¬ 
ferent data, every time he bartered his 
coat for a different kind of article ; 
and there could be no current price, or 
regular quotations of value. W hereas 
now each thing has a current price in 
money, and he gets over all difficulties 
by reckoning his coat at Al. or ol., and 
a four-pound loaf at 6d. or Id. As it 
is much easier to compare different 
lengths by expressing them in a com¬ 
mon language of feet and inches, so it 
is much easier to compare values by 
means of a common language of 
pounds, shillings, and pence. In no 
* Spirit of Lawn, conclusion of book xi. 






294 BOOK III. CHAPTER VII. § 2. 


other way can values be arranged one 
above another in a scale; in no other 
can a person conveniently calculate 
the sum of his possessions; and it is 
easier to ascertain and remember the 
relations of many things to one thing, 
than their innumerable cross relations 
with one another. This advantage of 
having a common language in which 
values may be expressed, is, even by 
itself, so important, that some such 
mode of expressing and computing 
them would probably be used even if a 
pound or a shilling did not express 
any real thing, but a mere unit of cal¬ 
culation. It is said that there are 
African tribes in which this somewhat 
artificial contrivance actually prevails. 
They calculate the value of things in 
a sort of money of account, called ma- 
cutes. They say, one thing is worth 
ten macutes, another fifteen, another 
twenty.* There is no real thing 
called a macute: it is a conventional 
unit, for the more convenient com¬ 
parison of things with one another. 

This advantage, however, forms but 
an inconsiderable part of the econo¬ 
mical benefits derived from the use of 
money. The inconveniences of barter 
are so great, that without some more 
commodious means of effecting ex¬ 
changes, the division of employments 
could hardly have been carried to any 
considerable extent. A tailor, who 
had nothing but coats, might starve 
before he could find any person having 
bread to sell who wanted a coat: be¬ 
sides, he would not want as much 
bread at a time as would be worth a 
coat, and the coat could not be divided. 
Every person, therefore, would at all 
times hasten to dispose of his com¬ 
modity in exchange for anything which, 
though it might not be fitted to his 
own immediate wants, was in great and 
general demand, and easily divisible, 
so that he might be sure of being 
able to purchase with it whatever was 
offered for sale. The primary neces¬ 
saries of life possess these properties 
in a high degree. Bread is extremely 
divisible, and an object of universal 
desire. Still, this is not the sort of 

* Montesquieu, Spirit of Laics, book xxii. 

ch. 8. 


thing required; forj of food, unless 
in expectation of a scarcity, no one 
wishes to possess more at once, than 
is wanted for immediate consumption; 
so that a person is never sure of find¬ 
ing an immediate purchaser for articles 
of food: and unless soon disposed of, 
most of them perish. The thing which 
people would select to keep by them for 
making purchases, must be one which, 
besides being divisible, and generally 
desired, does not deteriorate by keep¬ 
ing. This reduces the choice to a 
small number of articles. 

§ 2. By a tacit concurrence, almost 
all nations, at a very early period, 
fixed upon certain metals, and espe¬ 
cially gold and silver, to serve this 
purpose. No other substances unite the 
necessary qualities in so great a degree, 
with so many subordinate advantages. 
Next to food and clothing, and in 
some climates even before clothing, the 
strongest inclination in a rude state of 
society is for personal ornament, and 
for the kind of distinction which is 
obtained by rarity or costliness in such 
ornaments. After the immediate neces¬ 
sities of life were satisfied, every one 
was eager to accumulate as great a store 
as possible of things at once costly and 
ornamental; which were chiefly gold, 
silver, and jewels. These were the 
things which it most pleased every 
one to possess, and which there was 
most certainty of finding others willing 
to receive in exchange for any kind of 
produce. They were among the most 
imperishable of all substances. They 
were also portable, and containing great 
value in small bulk, were easily hid: 
a consideration of much importance in 
an age of insecurity. Jewels are infe¬ 
rior to gold and silver in the quality of 
divisibility; and are of very various 
qualities, not to be accurately discri¬ 
minated without great trouble. Gold 
and silver are eminently divisible, and 
when pure, always of the same quality; 
and their purity may be ascertained 
and certified by a public authority. 

Accordingly, though furs have been 
employed as money in some countries, 
cattle in others, in Chinese Tartary 
cubes of tea closely pressed together, 



MONEY. 


•the shells called cowries on the coast 
of Western Africa, and in Abyssinia 
at this day blocks of rock salt; though 
even of metals, the less costly have 
sometimes been chosen, as iron in Lace¬ 
daemon from an ascetic policy, copper 
in the early Roman republic from the 
poverty of the people ; gold and silver 
have been generally preferred by na¬ 
tions which were able to obtain them, 
either by industry, commerce, or con¬ 
quest. To the qualities which ori¬ 
ginally recommended them, another 
came to be added, the importance of 
which only unfolded itself by degrees. 
Of all commodities, they are among 
the least influenced by any of the 
causes which produce fluctuations of 
value. No commodity is quite free 
from such fluctuations. Gold and silver 
have sustained, since the beginning of 
history, one great permanent altera¬ 
tion of value, from the discovery of 
the American mines: and some tem¬ 
porary variations, such as that which, 
in the last great war, was produced by 
the absorption of the metals in hoards, 
and in the military chests of the im¬ 
mense armies constantly in the field. 
In the present age the opening of new 
sources of supply, so abundant as the 
Ural Mountains, California, and Aus¬ 
tralia, may be the commencement of 
another period of decline, on the limits 
of which it would be useless at present 
to speculate. But on the whole, no com¬ 
modities are so little exposed to causes 
of variation. They fluctuate less than 
almost any other things in their cost 
of production. And from their dura¬ 
bility, the total quantity in existence 
is at all times so great in proportion to 
the annual supply, that the effect on 
value even of a change in the cost of 
production is not sudden: a very long 
time being required to diminish mate¬ 
rially the quantity in existence, and 
even to increase it very greatly not 
being a rapid process. Gold and silver, 
therefore, are more fit than any other 
commodity to be the subject of engage¬ 
ments for receiving or paying a given 
quantity at some distant period. If 
the engagement were made in corn, 
a failure of crops might increase the 
burthen of the payment in one year 


295 

to fourfold what was intended, or an 
exuberant harvest sink it in another 
to one-fourth. If stipulated in cloth, 
some manufacturing invention might 
permanently reduce the payment to a 
tenth of its original value. Such things 
have occurred even in the case of pay¬ 
ments stipulated in gold and silver; but 
the great fall of their value after the dis¬ 
covery of America, is, as yet, the only 
authenticated instance; and in this 
case the change was extremely gra¬ 
dual, being spread over a period of 
many years. 

_ When gold and silver had become 
virtually a medium of exchange, by 
becoming the things for which people 
generally sold, and with which they 
generally bought, whatever they had 
to sell or buy; the contrivance of coin¬ 
ing obviously suggested itself. By this 
process the metal was divided into con¬ 
venient portions, of any degree of small¬ 
ness, and bearing a recognised propor¬ 
tion to one another; and the trouble 
was saved of weighing and assaying 
at every change of possessors, an in¬ 
convenience which on the occasion of 
small purchases would soon have 
become insupportable. Governments 
found it their interest to take the 
operation into their own hands, and to 
interdict all coining by private persons ; 
indeed, their guarantee was often the 
only one which would have been re¬ 
lied on, a reliance however which very 
often it ill deserved; profligate govern¬ 
ments having until a very modern 
period seldom scrupled, for the sake of 
robbing their creditors, to confer on 
all other debtors a licence to rob theirs, 
by the shallow and impudent artifice 
of lowering the standard; that least 
covert of all modes of knavery, which 
consists in calling a shilling a pound, 
that a debt of a hundred pounds may 
be cancelled by the payment of a hun¬ 
dred shillings. It would have been as 
simple a plan, and would have answered 
the purpose as well, to have enacted 
that “ a hundred” should always be in¬ 
terpreted to mean five, which would 
have effected the same reduction in all 
pecuniary contracts, and would not 
have been at all more shameless. Such 
strokes of policy have not wholly 



296 BOOK III. CHAPTER VII. § 3. 


ceased to be recommended, but they 
have ceased to be practised; except 
occasionally through the medium of 
paper money, in which case the cha¬ 
racter of the transaction, from the 
greater obscurity of the subject, is a 
little less barefaced. 

§ 3. Money, when its use has grown 
habitual, is the medium through which 
the incomes of the different members 
of the community are distributed to 
them, and the measure by which they 
estimate their possessions. As it is 
always by means of money that people 
provide for their different necessities, 
there grows up in their minds a power¬ 
ful association leading them to regard 
money as wealth in a more peculiar 
sense than any other article ; and even 
those who pass their lives in the pro¬ 
duction of the most useful objects, ac¬ 
quire the habit of regarding those ob¬ 
jects as chiefly important by their 
capacity of being exchanged for money. 
A person who parts with money to 
obtain commodities, unless he intends 
to sell them, appears to the imagina¬ 
tion to be making a worse bargain than 
a person who parts with commodities 
to get money; the one seems to be 
spending his means, the other adding 
to them. Illusions which, though now 
in some measure dispelled, were long 
powerful enough to overmaster the 
mind of every politician, both specula¬ 
tive and practical, in Europe. 

It must be evident, however, that 
the mere introduction of a particular 
mode of exchanging things for one 
another, by first exchanging a thing 
for money, and then exchanging the 
money for something else, makes no 
difference in the essential character of 
transactions. It is not with money 
that things are really purchased. No¬ 
body’s income (except that of the gold 
or silver miner) is derived from the 
precious metals. The pounds or shil¬ 
lings which a person receives weekly 
or yearly, are not what constitutes his 
income ; they are a sort of tickets or 
orders which he can present for pay¬ 
ment at any shop he pleases, and which 
entitle him to receive a certain value 
of any commodity that l\e makes cliaics 


of. The farmer pays his labourers and 
his landlord in these tickets, as the 
most convenient plan for himself and 
them; but their real income is their 
share of his corn, cattle, and hay, and 
it makes no essential difference whether 
he distributes it to them directly, or 
sells it for them and gives them the 
price ; but as they would have to sell 
it for money if he did not, and as he 
is a seller at any rate, it best suits the 
purposes of all, that he should sell their 
share along with his own, and leave 
the labourers more leisure for work and 
the landlord for being idle. The capi¬ 
talists, except those who are producers 
of the precious metals, derive no part 
of their income from those metals, since 
they only get them by buying them 
with their own produce: while all other 
persons have their incomes paid to them 
by the capitalists, or by those who have 
received payment from the capitalists, 
and as the capitalists have nothing, 
from the first, except their produce, it 
is that and nothing else which supplies 
all incomes furnished by them. There 
cannot, in short, be intrinsically a more 
insignificant thing, in the economy of 
society, than money; except in the 
character of a contrivance for sparing 
time and labour. It is a machine for 
doing quickly and commodiously, what 
would be done, though less quickly and 
commodiously, without it: and like 
many other kinds of machinery, it 
only exerts a distinct and independent 
influence of its own when it gets out 
of order. 

The introduction of money does not 
interfere with the operation of any of 
the Laws of Value laid down in the 
preceding chapters. The reasons which 
make the temporary or market value 
of things depend on the demand and 
supply, and their average and perma¬ 
nent values upon their cost of pro¬ 
duction, are as applicable to a money 
system as to a system of barter. Things 
which by barter would exchange for 
one another, will, if sold for money, 
sell for an equal amount of it, and so 
will exchange for one another still, 
though the process of exchanging them 
will consist of two operations instead 
Qi c-rJy one. The relations of com- 



VALUE OF MONEY. 


modities to one another remain unal¬ 
tered by money: the only new relation 
introduced, is their relation to money 
itself; how much or how little money 
they will exchange for; in other words, 
Low the Exchange Value of money 
itself is determined. And this is not 
a question of any difficulty, when the 
illusion is dispelled, which caused 
money to be looked upon as a peculiar 
thing, not governed by the same laws 
as other things. Money is a commodity, 
and its value is determined like that 
of other commodities, temporarily by 
demand and supply, permanently and 


297 

on the average by cost of production. 
The illustration of these principles, con¬ 
sidered in their application to money, 
must he given in some detail, on an 
count of the confusion which, in minds 
not scientifically instructed on the sub¬ 
ject, envelopes the whole matter; partly 
from a lingering remnant of the old 
misleading associations, and partly from 
the mass of vapoury and baseless spe¬ 
culation with which this, more than 
any other topic of political economy, 
has in latter times become surrounded. 
I shall therefore treat of the Value of 
Money in a chapter apart. 


CHAPTER VIII. 


OF THE VALUE OF MONEY, AS DEPENDENT ON DEMAND AND SUPPLY. 


§ 1. It is unfortunate that in the 
very outset of the subject we have to 
clear from our path a formidable am¬ 
biguity of language. The Value of 
Money is to appearance an expression 
as precise, as free from possibility of 
misunderstanding, as any in science. 
The value of a thing, is what it will 
exchange for: the value of money, is 
what money will exchange for; the 
purchasing power of money. If prices 
are low, money will buy much of other 
things, and is of high value; if prices 
are high, it will buy little of other 
things, and is of low value. The value 
of money is inversely as general prices : 
falling as they rise, and rising as they 
fall. 

But unhappily the same phrase is 
also employed, in the current language 
of commerce, in a very different sense. 
Money, which is so commonly under¬ 
stood as the synonyme of wealth, is 
more especially the term in use to 
denote it when it is the subject of bor¬ 
rowing. When one person lends to 
another, as well as when he pays wages 
or rent to another, what he transfers is 
not the mere money, hut a right to a 
certain value of the produce of the 
country, to be selected at pleasure ; the 
iiCErder having first bought this right, 


by givingfor it a portion of his capital. 
What he really lends is so much 
capital; the money is the mere instru¬ 
ment of transfer. But the capital 
usually passes from the lender to the 
receiver through the means either of 
money, or of an order to receive money, 
and at anv rate it is in money that 
the capital is computed and estimated. 
Hence, borrowing capital is universally 
called borrowing money; the loan 
market is called the money market: 
those who have their capital disposable 
for investment on loan are called the 
monied class : and the equivalent given 
for the use of capital, or in other words, 
interest, is not only called the interest 
of money, hut, by a grosser perversion 
of terms, the value of money. This 
misapplication of language, assisted by 
some fallacious appearances which we 
shall notice and clear up hereafter,* 
has created a general notion among 
persons in business, that the Value of 
Money, meaning the rate of interest, 
has an intimate connexion with the 
Value of Money in its proper sense, the 
value or purchasing power of the cir¬ 
culating medium. We shall return to 
this subject before long: at present it 
is enough to say, that by Value I shall 
* Infra, ch. xxiii. 






BOOK III. CHAPTER VIII. § 2. 


293 

always mean Exchange Value, and by 
money the medium of exchange, not 
the capital which is passed from hand 
to hand through that medium. 

§ 2. The value or purchasing power 
of money depends, in the first instance, 
on demand and supply. But demand 
and supply, in relation to money, present 
themselves in a somewhat different 
shape from the demand and supply of 
other things. 

TTe supply of a commodity means 
the quantity offered for sale. But it 
is not usual to speak of offering money 
for sale. People are not usually said 
to buy or sell money. This, however, 
is merely an accident of language. 
In point of fact, money is bought and 
sold like other things, whenever other 
things are bought and sold for money. 
Whoever sells corn, or tallow, or cotton, 
buys money. Whoever buys bread, or 
wine, or clothes, sells money to the 
dealer in those articles. The money 
with which people are offering to buy, 
is money offered for sale. The supply 
of money, then, is the quantity of it 
which people are wanting to lay out; 
that is, all the money they have in 
their possession, except what they are 
hoarding, or at least keeping by them 
as a reserve for future contingencies. 
The supply of money, in short, is all 
the money in circulation at the 
time. 

The demand for money, again, con¬ 
sists of all the goods offered for sale. 
Every seller of goods is a buyer of 
money, and the goods he brings with 
him constitute his demand. The de¬ 
mand for money differs from the demand 
for other things in this, that it is 
limited only bv the means of the pur¬ 
chaser. The demand for other things 
is for so much and no more ; but there 
is always a demand for as much money 
as can be got. Persons may indeed 
refuse to sell, and withdraw their goods 
from the market, if they cannot get for 
them what they consider a sufficient 
price. But this is only when they think 
that the price will rise, and that they 
shall get more money by waiting. If 
they thought the low price likely to be 
permanent, they would take what they 


could get. It is always a sine qua non 
with a dealer to dispose of his goods. 

As the whole of the goods in the 
market compose the demand for money, 
so the whole of the money constitutes 
the demand for goods. The money and 
the goods are seeking each other for 
the purpose of being exchanged. They 
are reciprocally supply and demand to 
one another. It is indifferent whether, 
in characterizing the phenomena, we 
speak of the demand and supply of 
goods, or the supply and the demand 
of money. They are equivalent ex¬ 
pressions. 

We shall proceed to illustrate this 
proposition more fully. And in doing 
this, the reader will remark a great dif¬ 
ference between the class of questions 
which now occupy us, and those which 
we previously had under discussion re¬ 
specting Values. In considering Value, 
we were only concerned with causes 
which acted upon particular commo¬ 
dities apart from the rest. Causes 
which affect all commodities alike, do 
not act upon values. But in consider¬ 
ing the relation between goods and 
money, it is with the causes that ope¬ 
rate upon all goods whatever, that 
we are especially concerned. We are 
comparing goods of all sorts on one 
side, with money on the other side, as 
things to be exchanged against each 
other. 

Suppose, everything else being the 
same, that there is an increase in the 
quantity of money, say by the arrival 
of a foreigner in a place, with a treasure 
of gold and silver. When he commences 
expending it (for this question it mat¬ 
ters not whether productively or unpro- 
ductively), he adds to the supply of 
money, and by the same act, to the 
demand for goods. Doubtless he adds, 
in the first instance, to the demand 
only for certain kinds of goods, namely, 
those which he selects for purchase ; lie 
will immediately raise the price of 
those, and so far as he is individually 
concerned, of those only. If he spends 
his funds in giving entertainments, he 
will raise the prices of food and wine. 
If he expends them in establishing a 
manufactory, he will raise the prices 
of labour and materials. But at the 



VALUE OF MONEY. 


higher prices, more money will pass 
into the hands of the sellers of these 
different articles ; and they, whether 
labourers or dealers, having more money 
to lay out, will create an increased de¬ 
mand for all the things which they are 
accustomed to purchase : these accord¬ 
ingly will rise in price, and so on until 
the rise has reached everything. I say 
everything, though it is of course pos¬ 
sible that the influx of money might 
take place through the medium of some 
new class of consumers, or in such a 
manner as to alter the proportions of 
different classes of consumers to one 
another, so that a greater share of 
the national income than before would 
thenceforth be expended in some ar¬ 
ticles, and a smaller in others ; exactly 
as if a change had taken place in the 
tastes and wants of the community. If 
this were the case, then until production 
had accommodated itself to this change 
in the comparative demand for different 
things, there would be a real alteration 
in values, and some things would rise 
in price more than others, while some 
perhaps would not rise at all. These 
effects, however, would evidently pro¬ 
ceed, not from the mere increase of 
money, but from accessory circum¬ 
stances attending it. We are now only 
called upon to consider what would be 
the effect of an increase of money, con¬ 
sidered by itself. Supposing the money 
in the hands of individuals to bef in¬ 
creased, the wants and inclinations of 
the community collectively in respect 
to consumption remaining exactly the 
same; the increase of demand would 
reach all things equally, and there 
would be an universal rise of prices. 
"We might suppose with Hume, that 
some morning, every person in the 
nation should wake and find a gold 
coin in his pocket: this example, how¬ 
ever, would involve an alteration of the 
proportions in the demand for different 
commodities; the luxuries of the poor 
would, in the first instance, be raised in 
price, in a much greater degree than 
other things. Let us rather suppose, 
therefore, that to every pound, or shil¬ 
ling, or penny, in the possession of any 
one, another pound, shilling, or penny, 
were suddenly added. There would be 


299 

an increased money demand, and con¬ 
sequently an increased money value, or 
price, for things of all sorts. This in¬ 
creased value would do no good to any 
one; would make no difference, except 
that of having to reckon pounds, shil¬ 
lings, and pence, in higher numbers. 
It would be an increase of values only 
as estimated in money, a thing only 
wanted to buy other things with; and 
would not enable any one to buy more 
of them than before. Prices would have 
risen in a certain ratio, and the value 
of money would have fallen in the same 
ratio. 

It is to be remarked that this ratio 
would be precisely that in which the 
quantity of money had been increased. 
If the whole money in circulation w r as 
doubled, prices would be doubled. If it 
was only increased one-fourth, prices 
would rise one-fourth. There would be 
one-fourth more money, all of which 
would be used to purchase goods of 
some description. When there had 
been time for the increased supply of 
money to reach all markets, or (accord¬ 
ing to the conventional metaphor) to 
permeate all the channels of circulation, 
all prices would have risen one-fourth. 
But the general rise of price is inde¬ 
pendent of this diffusing and equaliz¬ 
ing process. Even if some prices were 
raised more, and others less, the ave¬ 
rage rise would be one-fourth. This is 
a necessary consequence of the fact, 
that a fourth more money would have 
been given for only the same quantity 
of goods. General prices, therefore, 
would in any case be a fourth higher. 

The very same effect would be pro¬ 
duced on prices if we suppose the goods 
diminished, instead of the money in¬ 
creased : and the contrary effect if the 
goods were increased, or the money 
diminished. If there were less money 
in the hands of the community, and the 
same amount of goods to be sold, less 
money altogether would be given for 
them, and they would be sold at lower 
prices ; lower, too, in the precise ratio 
in which the money Avas diminished. 
So that the value of money, other 
things being the same, varies inversely 
as its quantity; every increase of quan¬ 
tity lowering the value, and every 



300 BOOK III. CHAPTER VIII. 5 3. 


diminution raising it, in a ratio exactly 
equivalent. 

This, it must be observed, is a pro¬ 
perty peculiar to money. We did not 
find it to be true of commodities gene¬ 
rally, that every diminution of supply 
raised the value exactly in proportion 
to the deficiency, or that every increase 
lowered it in the precise ratio of the 
excess. Some things are usually 
affected in a greater ratio than that of 
the excess or deficiency, others usually 
in a less: because, in ordinary cases of 
demand, the desire, being for the thing 
itself, may be stronger or weaker; and 
the amount of what people are willing 
to expend on it, being in any case a 
limited quantity, may be affected in 
very unequal degrees by difficulty or 
facility of attainment. But in the case 
of money, which is desired as the 
means of universal purchase, the de¬ 
mand consists of everything which 
people have to sell; and the only limit 
to what they are willing to give, is the 
limit set by their having nothing more 
to offer. The whole of the goods being 
in any case exchanged for the whole of 
the money which comes into the market 
to be laid out, they will sell for less or 
more of it, exactly according as less or 
more is brought. 

§ 3. From what precedes, it might 
for a moment be supposed, that all the 
goods on sale in a country at any one 
time, are exchanged for all the money 
existing and in circulation at that same 
time : or, in other words, that there is 
always in circulation in a country, a 
quantity of money equal in value to 
the whole of the goods then and there 
on sale. But this would be a complete 
misapprehension. The money laid out 
is equal in value to the goods it pur¬ 
chases ; but the quantity of money laid 
out is not the same thing with the 
quantity in circulation. As the money 
passes from hand to hand, the same 
piece of money is laid out many times, 
before all the things on sale at one 
time are purchased and finally removed 
from the market: and each pound or 
dollar must be counted for as many 
pounds or dollars, as the number of 
times it changes hands in order to 


effect this object. The greater part 
of the goods must also be counted more 
than once, not only because most things 
pass through the hands of several sets 
of manufacturers and dealers before 
they assume the form in which they 
are finally consumed, but because in 
times of speculation (and all times are 
so, more or less) the same goods are 
often bought repeatedly, to be resold 
for a profit, before they are bought 
for the purpose of consumption at all. 

If we assume the quantity of goods 
on sale, and the number of times those 
goods are resold, to be fixed quantities, 
the value of money will depend upon 
its quantity, together with the average 
number of times that each piece changes 
hands in the process. The whole of the 
goods sold (counting each resale of 
the same goods as so much added to 
the goods) have been exchanged for the 
whole of the money, multiplied by the 
number of purchases made on the aver¬ 
age by each piece. Consequently, the 
amount of goods and of transactions 
being the same, the value of money is 
inversely as its quantity multiplied by 
what is called the rapidity of circula¬ 
tion. And the quantity of money in 
circulation, is equal to the money value 
of all the goods sold, divided by the 
number which expresses the rapidity of 
circulation. 

The phrase, rapidity of circulation, 
requires some comment. It must not 
be understood to mean, the number of 
purchases made by each piece of money 
in a given time.’ Time is not the thing 
to be considered. The state of society 
may be such, that each piece of money 
hardly performs more than one pur¬ 
chase in a year; but if this arise from 
the small number of transactions—from 
the small amount of business done, the 
want of activity in traffic, or because 
what traffic there is, mostly takes place 
by barter—it constitutes no reason why 
prices should be lower, or the value of 
money higher. The essential point is, 
not how often the same money changes 
hands in a given time, but how often 
it changes hands in order to perform a 
given amount of traffic. We must com¬ 
pare the number of purchases made by 
the money in a given time, not with 



VALUE OF MONET. 301 


the time itself, but with the goods sold 
in that same time. If each piece of 
money changes hands on an average 
ten times while goods are sold to the 
value of a million sterling, it is evident 
that the money reqinred to circulate 
those goods is 100,000/. And con¬ 
versely, if the money in circulation is 
100,000/., and each piece changes 
hands by the purchase of goods ten 
times in a month, the sales of goods 
for money which take place every 
month must amount on the average to 
1,000,000/. 

Rapidity of circulation being a phrase 
so ill adapted to express the only thing 
which it is of any importance to express 
by it, and having a tendency to con¬ 
fuse the subject by suggesting a mean¬ 
ing extremely different from the one 
intended, it would be a good thing if 
the phrase could be got rid of, and 
another substituted, more directly 
significant of the idea meant to be con¬ 
veyed. Some such expression as “ the 
efficiency of money,” though not un¬ 
exceptionable, would do better: as it 
would point attention to the quantity 
of work done, without suggesting the 
idea of estimating it by time. Until 
an appropriate term can be devised, we 
must be content, when ambiguity is to 
be apprehended, to express the idea by 
the circumlocution which alone conveys 
it adequately, namely, the average 
number of purchases made by each 
piece in order to effect a given pecu¬ 
niary amount of transactions. 

§ 4. The proposition which we have 
laid down respecting the dependence 
of general prices upon the quantity of 
money in circulation, must be under¬ 
stood as applying only to a state of 
.things in which money, that is, gold or 
silver, is the exclusive instrument of 
•exchange, and actually passes from 
hand to hand at every purchase, credit 
in any of its shapes being unknown. 
When credit comes into play as a means 
of purchasing, distinct from money in 
hand, we shall hereafter find that the 
connexion between prices and the 
amount of the circulating medium is 
much less direct and intimate, and that 
such connexion as does exist, no longer 


admits of so simple a mode of expres¬ 
sion. But on a subject so full of com¬ 
plexity as that of currency and prices, 
it is necessary to lay the foundation of 
our theory in a thorough understanding 
of the most simple cases, which we 
shall always find lying as a ground¬ 
work or substratum under those which 
arise in practice. That an increase of 
the quantity of money raises prices, and 
a diminution lowers them, is the most 
elementary proposition in the theory of 
currency, and without it we should 
have no key to any of the others. In 
any state of things, however, except 
the simple and primitive one which we 
have supposed, the proposition is only 
true other things being the same : and 
what those other things are, which 
must be the same, we are not yet ready 
to pronounce. We can, however, point 
out, even now, one or two of the cau¬ 
tions with which the principle must be 
guarded in attempting to make use of 
it for the practical explanation of phe¬ 
nomena ; cautions the more indispensa¬ 
ble, as the doctrine, though a scientific 
truth, has of late years been the foun¬ 
dation of a greater mass of false theory, 
and erroneous interpretation of facts, 
than any other proposition relating to 
interchange. From the time of the 
resumption of cash payments by the 
Act of 1819, and especially since the 
commercial crisis of 1825, the favourite 
explanation of every rise or fall of prices 
has been “the currency;’’ and like 
most popular theories, the doctrine has 
been applied with little regard to the 
conditions necessary for making it cor¬ 
rect. 

For example, it is habitually assumed 
that whenever there is a greater 
amount of money in the country, or in 
existence, a rise of prices must neces¬ 
sarily follow. But this is by no means 
an inevitable consequence. In no com¬ 
modity is it the quantity in existence, 
but the quantity offered for sale, that 
determines the value. Whatever may 
be the quantity of money in the country, 
only that part of it wall affect prices, 
which goes into the market of commo¬ 
dities, and is there actually exchanged 
against goods. Whatever increases the 
amount of this portion of the money in 



BOOK III. CHAPTER VIII. § 4. 


302 

the country, tends to raise prices. But 
money hoarded does not act on prices. 
Money kept in reserve by individuals 
to meet contingencies which do not 
occur, does not act on prices. The 
money in the coffers of the Bank, or 
retained as a reserve by private bank¬ 
ers, does not act on prices until drawn 
out, nor even then unless drawn out to 
be expended in commodities. 

It frequently happens that money, to 
a considerable amount, is brought into 
the country, is there actually invested 
as capital, and again flows out, without 
having ever once acted upon the mar¬ 
kets of commodities, but only upon the 
market of securities, or, as it is com¬ 
monly though improperly called, the 
money market. Let us return to the 
case already put for illustration, that 
of a foreigner landing in the country 
with a treasure. We supposed him to 
employ his treasure in the purchase of 
goods for his own use, or in setting up a 
manufactory and employing labourers; 
and in either case he would, cceteris 
paribus, raise prices. But instead of 
doing either of these things, he might 
very probably prefer to invest his for¬ 
tune at interest; which we shall sup¬ 
pose him to do in the most obvious way, 
by becoming a competitor for a portion 
of the stock, exchequer bills, railway 
debentures, mercantile bills, mortgages, 
&c., which are at all times in the hands 
of the public. By doing this he would 
raise the prices of those different secu¬ 
rities, or in other words would lower 
the rate of interest; and since this 
would disturb the relation previously 
existing between the rate of interest 
on capital in the country itself, and 
that in foreign countries, it would pro¬ 
bably induce some of those who had 
floating capital seeking employment, to 
send it abroad for foreign investment, 
rather than buy securities at home at 
the advanced price. As much money 
might thus go out as had previously 
come in, while the prices of commodities 
would have shown no trace of its tem¬ 
porary presence. This is a case highly 
deserving of attention : and it is a fact 
now beginning to be recognised, that 
the passage of the precious metals from 
country to country is determined much 


more than was formerly supposed, by 
the state of the loan market in different 
countries, and much less by the state 
of prices. 

Another point must be adverted to, 
in order to avoid serious error in the in¬ 
terpretation of mercantile phenomena. 
If there be, at any time, an increase in 
the number of money transactions, a 
thing continually liable to happen from 
differences in the activity of specula¬ 
tion, and even in the time of year (since 
certain kinds of business are transacted 
only at particular seasons); an increase 
of the currency which is only propor¬ 
tional to this increase of transactions, 
and is of no longer duration, has no 
tendency to raise prices. At the 
quarterly periods when the public 
dividends are paid at the Bank, a sud¬ 
den increase takes place of the money 
in the hands of the public ; an increase 
estimated at from a fifth to two-fifths 
of the whole issues of the Bank of Eng¬ 
land. Yet this never has any effect on 
prices ; and in a very few weeks, the 
currency has again shrunk into its 
usual dimensions, by a mere reduction 
in the demands of the public (after so 
copious a supply of ready money) for 
accommodation from the Bank in the 
way of discount or loan. In like manner 
the currency of the agricultural dis¬ 
tricts fluctuates in amount at different 
seasons of the year. It is always low¬ 
est in August: “ it rises generally 
towards Christmas, and obtains its 
greatest elevation about Lady-day, 
when the farmer commonly lays in his 
stock, and has to pay his rent and 
summer-taxes,” and when he therefore 
makes his principal applications to 
country bankers lor loans. “Those 
variations occur with the same regu¬ 
larity as the season, and with just as 
little disturbance of the markets as the 
quarterly fluctuations of the notes of 
the Bank of England. As soon as the 
extra payments have been completed, 
the superfluous” currency, which is 
estimated at half a million, “as cer¬ 
tainly and immediately is reabsorbed 
and disappears.”* 

If extra currency were not forth- 

* Fullarton on the Regulation of Curren¬ 
cies, 2nd edit. pp. 87—9. " 



VALUE OF MONEY. 303 


coining to make these extra payments, 
one of three things must happen. Either 
the payments must be made without 
money, by a resort to some of those 
contrivances by which its use is dis¬ 
pensed with ; or there must he an in¬ 
crease in the rapidity of circulation, the 
same sum of money being made to per¬ 
form more payments ; or if neither of 
these things took place, money to make 
the extra payments must be withdrawn 
from the market for commodities, and 
prices, consequently, must fall. An 
increase of the circulating medium, 
conformable in extent and duration to 


the temporary stress of business, does 
not raise prices, but merely prevents 
this fall. 

The sequel of our investigation will 
point out many other qualifications with 
which the proposition must be received, 
that the value of the circulating medium 
depends on the demand and supply, and 
is in the inverse ratio of the quantity; 
qualifications which, under a complex 
system of credit like that existing in 
England, render the proposition an 
extremely incorrect expression of the 
fact. 


CHAPTER IX. 


OP THE VALUE OF MONEY, AS DEPENDENT ON COST OF PRODUCTION. 


§ 1. But money, no more than 
commodities in general, has its value 
definitively determined by demand and 
supply. The ultimate regulator of its 
value is Cost of Production. 

We are supposing, of course, that 
things are left to themselves. Govern¬ 
ments have not always left things to 
themselves. They have undertaken to 
prevent the quantity of money from 
adjusting itself according to sponta¬ 
neous laws, and have endeavoured to 
regulate it at their pleasure ; generally 
with a view of keeping a greater quan¬ 
tity of money in the country, than 
would otherwise have remained there. 
It was, until lately, the policy of all 
governments to interdict the exporta¬ 
tion and the melting of money; while, 
by encouraging the exportation and 
impeding the importation of other 
things, they endeavoured to have a 
stream of money constantly flowing in. 
By this course they gratified two pre¬ 
judices ; they drew, or thought that 
they drew, more money into the country, 
which they believed to be tantamount 
to more wealth; and they gave, or 
thought they gave, to all producers and 
dealers, high prices, which, though no 
real advantage, people are always in¬ 
clined to suppose to be one. 

In this attempt to regulate the value 


of money artificially by means of the 
supply, governments have never suc¬ 
ceeded in the degree, or even in the 
manner, which they intended. Their 
prohibitions against exporting or melt¬ 
ing the coin have never been effectual. 
A commodity of such small bulk in 
proportion to its value is so easily 
smuggled, and still more easily melted, 
that it has been impossible by the 
most stringent measures to prevent 
these operations. All the risk which 
it was in the power of governments to 
attach to them, was outweighed by a 
very moderate profit.* In the more 
indirect mode of aiming at the same 
purpose, by throwing difficulties in the 
way of making the returns for exported 
goods in any other commodity than 
money, they have not been quite so 
unsuccessful. They have not, indeed, 
succeeded in making money flow con¬ 
tinuously into the country; but they 
have to a certain extent been able to 
keep it at a higher than its natural 

* The effect of the prohibition cannot, 
however, have been so entirely insignificant 
as it has been supposed to be by writers on 
the subject. The facts adduced by Mr. Ful- 
larton, in the note to page 7 of his work on 
the Regulation of Currencies, show that it 
required a greater percentage of difference 
in value between coin and bullion than has 
commonly been imagined, to bring the coin 
to the melting-pot. 





BOOK III. CHAPTEK IX. § 2. 


304 

level; and have, thus far, removed the 
value of money from exclusive depen¬ 
dence on the causes which fix the 
values of things not artificially inter¬ 
fered with. 

We are, however, to suppose a state, 
not of artificial regulation, but of free¬ 
dom. In that state, and assuming no 
charge to be made for coinage, the 
value of money will conform to,the 
value of the bullion of which it is made. 
A pound weight of gold or silver in 
coin, and the same weight in an ingot, 
will precisely exchange for one another. 
On the supposition of freedom, the 
metal cannot be worth more in the 
state of bullion than of coin; for as it 
can be melted without any loss of time, 
and with hardly any expense, this 
would of course be done, until the 
quantity in circulation was so much 
diminished as to equalize its value with 
that of the same weight in bullion. It 
may be thought however that the coin, 
though it cannot be of less, may be, 
and being a manufactured article will 
naturally be, of greater value than the 
bullion contained in it, on the same 
principle on which linen cloth is of 
more value than an equal weight of 
linen yarn. This would be true, were 
it not that Government, in this country 
and in some others, coins money gratis 
for any one who furnishes the metal. 
The labour and expense of coinage, 
when not charged to the possessor, do 
not raise the value of the article. If 
Government opened an office where, on 
delivery of a given weight of yarn, it 
returned the same weight of cloth to 
any one who asked for it, cloth would 
be worth no more in the market than 
the yarn it contained. As soon as coin 
is worth a fraction more than the value 
of the bullion, it becomes the interest 
of the holders of bullion to send it to be 
coined. If Government, however, throws 
the expense of coinage, as is reason¬ 
able, upon the holder, by making a 
charge to cover the expense, (which is 
done by giving back rather less in coin 
than has been received in bullion, and 
is called levying a seignorage), the coin 
will rise, to the extent of the seignorage, 
above the value of the bullion. If the 
Mint kept back one per cent, to pay j 


the expense of coinage, it would bo 
against the interest of the holders of 
bullion to have it coined, until the coin 
was more valuable than the bullion by 
at least that fraction. The coin, there¬ 
fore, would be kept one per cent higher 
in value, which could only be by 
keeping it one per cent less in 
quantity, than if its coinage were 
gratuitous. 

The Government might attempt to 
obtain a profit by the transaction, and 
might lay on a seignorage calculated 
for that purpose; but whatever they 
took for coinage beyond its expenses, 
would be so much profit on private 
coining. Coining, though not so easy 
an operation as melting, is far from a 
difficult one, and, wdien the coin pro¬ 
duced is of full weight and standard 
fineness, is very difficult to detect. If, 
therefore, a profit could be made by 
coining good money, it would certainly 
be done: and the attempt to make 
seignorage a source of revenue would 
be defeated. Any attempt to keep the 
value of the coin at an artificial eleva¬ 
tion, not by a seignorage, but by re¬ 
fusing to coin, would be frustrated in 
the same manner.* 

§ 2. The value of money, then, 
conforms, permanently, and, in a state 
of freedom, almost immediately, to the 
value of the metal of which it is made; 
with the addition, or not, of the ex¬ 
penses of coinage, according as those 
expenses are borne by the individual or 
by the state. This simplifies extremely 
the question which we have here to 
consider: since gold and silver bullion 
are commodities like any others, and 

* In England, though there is no seignor¬ 
age on gold coin, (the Mint returning in coin 
the same weight of pure metal which it re¬ 
ceives in bullion) there is a delay of a few 
weeks after the bullion is deposited, before 
the coin can be obtained, occasioning a loss of 
interest, which, to the holder, is equivalent 
to a trifling seignorage. From this cause, 
the value of coin is in general slightly above 
that of the bullion it contains. An ounce of 
gold, according to die quantity of metal in a 
sovereign, should be worth 31. 17s. 10£<f.; 
but it was usually quoted at 31. 17s. Hd. f 
until the Bank Charter Act of 1844 made it 
imperative on the Bank to give its notes for 
all bullion offered to it at the rate of 
31. 17s. 9 d. 




VALUE OF MONEY. ' 305 


their value depends, like that of other 
things, on their cost of production. 

To the majority of civilized countries, 
gold and silver are foreign products: 
and the circumstances which govern 
the values of foreign products, present 
some questions which we are not yet 
ready to examine. For the present, 
therefore, we must suppose the country 
which is the subject of our inquiries, to 
he supplied with gold and silver by its 
own mines, reserving for future consi¬ 
deration how far our conclusions require 
modification to adapt them to the move 
usual case. 

Of the three classes into which com¬ 
modities are divided—those absolutely 
limited in supply, those which may be 
had in unlimited quantity at „ given 
cost of production, and those which 
may he had in unlimited quantity, but 
at an increasing cost of production—- 
the precious metals, being the produce 
of mines, belong to the third class. 
Their natural value, therefore, is in the 
long run proportional to their cost of 
production in the most unfavourable 
existing circumstances, that is, at the 
worst mine which it is necessary to 
work in order to obtain the required 
supply. A pound weight of gold will, 
in the gold-producing countries, ulti¬ 
mately tend to exchange for as much 
of every other commodity, as is pro¬ 
duced at a cost equal to its own ; mean¬ 
ing by its own cost the cost in labour 
and expense, at the least productive 
sources of supply which the then exist¬ 
ing demand makes it necessary to 
work. The average value of gold is 
made to conform to its natural value in 
the same manner as the values of other 
things are made to conform to their 
natural value. Suppose that it were 
selling above its natural value ; that is, 
above the value which is an equivalent 
for the labour and expense of mining, 
and for the risks attending a branch of 
industry in which nine out of ten expe¬ 
riments have usually been failures. A 
part of the mass of floating capital 
which is on the look-out for investment, 
would take the direction of mining 
enterprise; the supply would thus be 
increased, and the value would fall. If, 
no the contrary, it were selling below 
r.E. 


its natural value, miners would not be 
obtaining the ordinary profit; they 
would slacken their works; if the de¬ 
preciation was great, some of the infe¬ 
rior mines would perhaps stop working 
altogether: and a falling off in the 
annual supply, preventing the annual 
wear and tear from being completely 
compensated, would by degrees reduce 
the quantity, and restore the value. 

When examined more closely, the 
following are the details of the process. 
If gold is above its natural or cost 
value—the coin, as we have seen, con¬ 
forming in its value to the bullion— 
money will be of high value, "and the 
prices of all things, labour included, 
will be low. These low prices will 
lower the expenses of all producers; 
but as their returns will also be lowered, 
no advantage will be obtained by any 
producer, except the producer of gold: 
whose returns from his mine, not de¬ 
pending on price, will bo the same as 
before, and his expenses being less, he 
will obtain extra profits, and will be sti¬ 
mulated to increase his production. The 
reverse is the case if the metal is below 
its natural value: since this is as much 
as to say that prices are high, and the 
money expenses of all producers un¬ 
usually great: for this, however, all 
other producers will be compensated 
by increased money returns : the miner 
alone will extract from his mine no 
more metal than before, while his ex¬ 
penses will be greater: his profits 
therefore being diminished or annihi¬ 
lated, he will diminish his production, 
if not abandon his employment. 

In this manner it is that the value 
of money is made to conform to the 
cost of production of the metal of which 
it is made. It may be well, however, 
to repeat (what has been said before) 
that the adjustment takes a long time 
to effect, in the case of a commodity 
so generally desired and at the same 
time so durable as the precious metals. 
Being so largely used not only as 
money but for plate and ornament, 
there is at all times a very large quan¬ 
tity of these metals in existence: while 
they are so slowly worn out, that a 
comparatively small annual production, 
is sufficient to keep up the supply, and 




BOOK III. CHAPTER IX. § 3. 


306 

to make any addition to it which may 
he required by the increase of goods to 
be circulated, or by the increased de¬ 
mand for gold and silver articles by 
wealthy consumers. Even if this small 
annual supply w T ere stopt entirely, it 
would require many years to reduce 
the quantity so much as to make any 
very material difference in prices. The 
quantity may be increased, much more 
rapidly than it can be diminished; but 
the increase must be very great before 
it can make itself much felt over such 
a mass of the precious metals as exists 
in the whole commercial world. And 
hence the effects of all changes in the 
conditions of production of the precious 
metals are at first, and continue to be 
for many years, questions of quantity 
only, with little reference to cost of 
production. More especially is this 
the case when, as at the present time, 
many new sources of supply have been 
simultaneously opened, most of them 
practicable by labour alone, without 
any capital in advance beyond a pickaxe 
and a week’s food, and when the opera¬ 
tions are as yet wholly experimental, the 
comparative permanent productiveness 
of the different sources being entirely 
unascertained. 

§ 3. Since, however, the value of 
money really conforms, like that of 
other things, though more slowly, to its 
cost of production, some political econo¬ 
mists have objected altogether to the 
statement that the value of money de¬ 
pends on its quantity combined with 
the rapidity of circulation ; wdiich, they 
think, is assuming a law for money that 
does not exist for any other commodity, 
when the truth is that it is governed by 
the very same laws. To this w r e may 
answer, in the first place, that the state¬ 
ment in question assumes no peculiar 
Jaw. It is simply the law of demand 
and supply, which is acknowdedged to 
be applicable to all commodities, and 
which in the case of money as of most 
other things, is controlled, but not set 
aside, by the law 7 of cost of production, 
since cost of production would have no 
effect on value if it could have none on 
supply. But, secondly, there really is, 
in one respect, a closer connexion be¬ 


tween the value of money and its quan¬ 
tity, than between the values of other 
things and their quantity. The value 
of other things conforms to the changes 
in the cost of production, without re¬ 
quiring, as a condition, that there should 
be any actual alteration of the supply: 
the potential alteration is sufficient; 
and if there even be an actual altera¬ 
tion, it is but a temporary one, except 
in so far as the altered value may make 
a difference in the demand, and so re¬ 
quire an increase or diminution of 
supply, as a consequence, not a cause, 
of the alteration in value. Now this is 
also true of gold and silver, considered 
as articles of expenditure for ornament 
and luxury ; but it is not true of money. 
If the permanent cost of production of 
gold were reduced one-fourth, it might 
happen that there would not be more 
of it bought for plate, gilding, or jewel¬ 
lery, than before ; and if so, though the 
value would fall, the quantity extracted 
from the mines for these purposes would 
be no greater than previously. Not so 
with the portion used as money ; that 
portion could not fall in value one- 
fourth, unless actually increased one- 
fourth ; for, at prices one-fourth higher, 
one-fourth more money would be re¬ 
quired to make the accustomed pur¬ 
chases ; and if this were not forth¬ 
coming, some of the commodities would 
be without purchasers, and prices could 
not be kept up. Alterations, therefore, 
in the cost of production of the precious 
metals, do not act upon the value of 
money except just in proportion as they 
increase or diminish its quantity; which 
cannot be said of any other commodity. 
It would therefore, I conceive, be an 
error, both scientifically and practi¬ 
cally, to discard the proposition which 
asserts a connexion between the value 
of money and its quantity. 

It is evident, however, that the cost 
of production, in the long run, regulates 
the quantity ; and that every country 
(temporary fluctuations excepted) will 
possess, and have in circulation, just 
that quantity of money, which will per¬ 
form all the exchanges required of it, 
consistently with maintaining a value 
conformable to its cost of production. 
The prices of things will, on the ave- 




DOUBLE STANDARD, AND SUBSIDIARY COINS. 307 


rage, be such that money will exchange 
for its own cost in all other goods: and, 
precisely because the quantity cannot 
be prevented from affecting the value, 
the quantity itself will (by a sort of 
self-acting machinery) be kept at the 
amount consistent with that standard 
of prices—at the amount necessary for 
performing, at those prices, all the 
business required of it. 

“ The quantity wanted will depend 
partly on the cost of producing gold, 
and partly on the rapidity of its circu¬ 
lation. The rapidity of circulation 
being given, it would depend on the 
cost of production : and the cost of pro¬ 
duction being given, the quantity of 
money would depend on the rapidity of 
its circulation.”* After what has 
been already said, I hope that neither 
of these propositions stands in need of 
any further illustration. 

Money, then, like commodities in 
general, having a value dependent on, 
and proportional to, its cost of produc¬ 
tion ; the theory of money is, by the 
admission of this principle, stript of a 
great part of the mystery which appa¬ 
rently surrounded it. We must not 
forget, however, that this doctrine only 
applies to the places in which the pre¬ 
cious metals are actually produced; and 


that we have yet to enquire whether the 
law of the dependence of value on cost 
of production applies to the exchange 
of things produced at distant places. 
But however this may be, our proposi¬ 
tions with respect to value will require 
no other alteration, where money is an 
imported commodity, than that of sub¬ 
stituting for the cost of its production, 
the cost of obtaining it in the country. 
Every foreign commodity is bought by 
giving for it some domestic production; 
and the labour and capital which a 
foreign commodity costs to us, is the 
labour and capital expended in pro¬ 
ducing the quantity of our own goods 
which we give in exchange for it. 
What this quantity depends upon,— 
what determines the proportions of in¬ 
terchange between the productions of 
one country and those of another,—is 
indeed a question of somewhat greater 
complexity than those we have hitherto 
considered. But this at least is indis¬ 
putable, that within the country itself 
the value of imported commodities is 
determined by the value, and conse¬ 
quently by the cost of production, of 
the equivalent given for them; and 
money, where it is an imported com¬ 
modity, is subject to the same law. 


CHAPTER X. 


OF A DOUBLE STANDARD. 

§ 1. Though the qualities neces¬ 
sary to fit any commodity for being 
used as money are rarely united in any 
considerable perfection, there are two 
commodities which possess them in an 
eminent, and nearly an equal degree; the 
two precious metals, as they are called; 
gold and silver. Some nations have ac¬ 
cordingly attempted to compose their 
circulating medium of these two metals 
indiscriminately. 

* From some printed, but not published, 
Lectures of Mr. Senior : in which the great 
differences in the business done by money, 
as well as in the rapidity of its circulation, 
in different states of society and civilization, 
are interestingly illustrated. 


, AND SUBSIDIARY COINS. 

There is an obvious convenience in 
making use of the more costly metal for 
larger payments, and the cheaper one 
for smaller; and the only question re¬ 
lates to the mode in which this can 
best be done. The mode most fre¬ 
quently adopted has been to establish 
between the two metals a fixed propor¬ 
tion ; to decide, for exarrfple, that a gold 
coin called a sovereign should be equiva¬ 
lent to twenty of the silver coins called 
shillings: both the one and the other 
being called, in the ordinary money of 
account of the country, by the same 
denomination, a pound: and it being 
left free to every one who has a pound 

X 2 





308 BOOK III. CHAPTER X. § 2. 


to pay, either to pay it in the one metal 
or in the other. 

At the time when the valuation of 
the two metals relatively to each other, 
say twenty shillings to the sovereign, 
or twenty-one shillings to the guinea, 
was first made, the proportion probably 
corresponded, as nearly as it could be 
made to do, with the ordinary relative 
values of the two metals, grounded on 
their cost of production; and if those 
natural or cost values always continued 
to bear the same ratio to one another, 
the arrangement would be unobjection¬ 
able. This, however, is far from being 
the fact. Gold and silver, though the 
least variable in value of all commo¬ 
dities, are not invariable, and do not 
always vary simultaneously. Silver, 
for example, was lowered in permanent 
value more than gold, by the discovery 
of the American mines ; and those 
small variations of value which take 
place occasionally, do not affect both 
metals alike. Suppose such a variation 
to take place: the value of the two 
metals relatively to one another no 
longer agreeing with their rated pro¬ 
portion, one or other of them will now 
be rated below its bullion value, and 
there will be a profit to be made by 
melting it. 

Suppose, for example, that gold rises 
in value relatively to silver, so that the 
quantity of gold in a sovereign is now 
worth more than the quantity of silver 
in twenty shillings. Two consequences 
will ensue. No debtor will any longer 
find it his interest to pay in gold. He 
will always pay in silver, because twenty 
shillings are a legal tender for a debt of 
one pound, and he can procure silver 
convertible into twenty shillings, for less 
gold than that contained in a sovereign. 
The other consequence will be, that 
unless a sovereign can be sold for more 
than twenty shillings, all the sovereigns 
will be melted, since as bullion they will 
purchase a greater number of shillings 
than they exchange for as coin. The 
converse of all this would happen if 
silver, instead of gold, were the metal 
which had risen in comparative value. 
A sovereign would not now be worth so 
much as twenty shillings, and whoever 
had a pound to pay would prefer paying 


it by a sovereign ; while the silver coins- 
would be collected for the purpose of 
being melted, and sold as bullion for 
gold at their real value, that is, above 
the legal valuation. The money of the 
community, therefore, would never 
really consist of both metals, but of the 
one only which, at the particular time, 
best suited the interest of debtors; and 
the standard of the currency would be 
constantly liable to change from the 
one metal to the other, at a loss, on 
each change, of the expense of coin¬ 
age on the metal which fell out of 
use. 

It appears, therefore, that the value- 
of money is liable to more frequent 
fluctuations when both metals are a 
legal tender at a fixed valuation, than 
when the exclusive standard of the cur¬ 
rency is either gold or silver. Instead 
of being only affected by variations in 
the cost of production of one metal, it 
is subject to derangement from those of 
two. The particular kind of variation 
to which a currency is rendered more 
liable by having two legal standards, 
is a fall of value, or what is commonly 
called a depreciation ; since practically 
that one of the two metals will always 
be the standard, of which the real 
has fallen below the rated value. If 
the tendency of the metals be to rise in 
value, all payments will be made in the 
one which lias risen least; and if to 
fall, then in that which has fallen 
most. 

§ 2. The plan of a double standard 
is still occasionally brought forward by 
here and there a writer or orator as a 
great improvement in currency. It is 
probable that, with most of its ad¬ 
herents, its chief merit is its tendency 
to a sort of depreciation, there being at 
all times abundance of supporters for 
any mode, either open or covert, of 
lowering the standard. Some, how¬ 
ever, are influenced by an exaggerated 
estimate of an advantage which to a 
certain extent is real, that of being able 
to have recourse, for replenishing the 
circulation, to the united stock of gold 
and silver in the commercial world, in¬ 
stead of being confined to one of them, 
which, from accidental absorption, may 



CREDIT AS A SUBSTITUTE FOR MONEY. 309 


not be obtainable with sufficient ra¬ 
pidity. The advantage without the 
disadvantages of a double standard, 
seems to be best obtained by those na¬ 
tions with whom only one of the two 
metals is a legal tender, but the other 
also is coined, and allowed to pass for 
whatever value the market assigns to 
it. 

When this plan is adopted, it is na¬ 
turally the more costly metal which is 
left to be bought and sold as an article 
of commerce. But nations which, like 
England, adopt the more costly of the 
two as their standard, resort to a dif¬ 
ferent expedient for retaining them 
both in circulation, namely, to make 
silver a legal tender, but only for small 
payments. In England no one can be 
compelled to receive silver in payment 
for a larger amount than forty shillings. 
With this regulation there is necessa¬ 
rily combined another, namely, that 
silver coin should be rated, in compa¬ 


rison with gold, somewhat above its 
intrinsic value ; that there should not 
be, in twenty shillings, as much silver 
as is worth a sovereign: for if there 
were, a very slight turn of the market 
in its favour would make it worth more 
than a sovereign, and it would be pro¬ 
fitable to melt the silver coin. The 
over-valuation of the silver coin creates 
an inducement to buy silver am} send 
it to the Mint to be coined, since it is 
given back at a higher value than pro¬ 
perly belongs to it: this, however, has 
been guarded against, by limiting the 
quantity of the silver coinage, which 
is not left, like that of gold, to the dis¬ 
cretion of individuals, but is determined 
by the government, and restricted to 
the amount supposed to be required for 
small payments. The only precaution 
necessary is, not to put so high a va¬ 
luation upon the silver, as to hold out 
a strong temptation to private coining. 


CHAPTER XT. 


OF CREDIT, AS A SUBSTITUTE FOR MONEY. 


§ 1. The functions of credit have 
been a subject of as much misunder¬ 
standing and as much confusion of ideas 
as any single topic in Political Eco¬ 
nomy. This is not owing to any pe¬ 
culiar difficulty in the theory of the 
subject, but to the complex nature of 
some of the mercantile phenomena 
arising from the forms in which credit 
clothes itself; by which attention is 
diverted from the properties of credit 
in general, to the peculiarities of its 
particular forms. 

As a specimen of the confused no¬ 
tions entertained respecting the nature 
of credit, we may advert to the exag¬ 
gerated language so often used respect¬ 
ing its national importance. Credit has 
a great, but not, as many people seem to 
suppose, a magical power; it cannot 
make something out of nothing. How 
often is an extension of credit talked of 
as equivalent to a creation of capital, 


or as if credit actually wore capital. 
It seems strange that there should be 
any need to point out, that credit being 
only permission to use the capital of 
another person, the means of produc¬ 
tion cannot be increased by it, but only 
transferred. If the borrower’s means 
of production and of employing labour 
are increased by the credit given him, 
the lender’s are as much diminished. 
The same sum cannot be used as capital 
both by the owner and also by the 
person to whom it is lent: it cannot 
supply its entire value in wages, tools, 
and materials, to two sets of labourers 
at once. It is true that the capital 
which A has borrowed from B, and 
makes use of in his business, still forms 
part of the wealth of B for other pur¬ 
poses : he can enter into arrangements 
in reliance on it, and can borrow, when 
needful, an equivalent sum on the se¬ 
curity of it; so that to a superficial 






BOOK III. CHAPTER XI. § 2. 


310 

eye it might seem as if both B and A 
had the use of it at once. But the 
smallest consideration will show that 
when B has parted with his capital to 
A, the use of it as capital rests with 
A alone, and that B has no other ser¬ 
vice from it than in so far as his ulti¬ 
mate claim upon it serves him to obtain 
the use of another capital from a third 
person^C. All capital (not his own) 
of which any person has really the use, 
is, and must be, so much subtracted 
from the capital of some one else.* 

§ 2. But though credit is but a 
transfer of capital from hand to hand, 
it is generally, and naturally, a transfer 
to hands more competent to employ the 
capital efficiently in production. If 
there were no such thing as credit, 
or if, from general insecurity and want 
of confidence, it were scantily prac¬ 
tised, many persons who possess more 

* To make the proposition in the text 
strictly true, a correction, though a very 
slight one, requires to be made. The circu¬ 
lating medium existing in a country at a 
given time, is partly employed in purchases 
lor productive, and partly for unproductive 
consumption. According as a larger propor¬ 
tion of it is employed in the one way or in 
the other, the real capital of the country is 
greater or less. If, then, an addition were 
made to the circulating medium in the hands 
of unproductive consumers exclusively, a 
larger portion of the existing stock of com¬ 
modities would be bought for unproductive 
consumption, and a smaller for productive, 
which state of things, while it lasted, would 
be equivalent to a diminution of capital. 
And on the contrary, if the addition made 
be to the portion of the circulating medium 
which is in the hands of producers, and des¬ 
tined for their business, a greater portion of 
the commodities in the country will for the 
present be employed as capital, and a less 
portion unproductively. Now, an effect of 
this latter character naturally attends some 
extensions of credit, especially when taking 
place in the form of bank notes, or other 
instruments of exchange. The additional 
bank notes are, in ordinary course, first 
issued to producers or dealers, to be em¬ 
ployed as capital; and though the stock of 
commodities in the country is no greater 
than before, yet as a greater share of that 
stock now comes by purchase into the hands 
of producers and dealers, to that extent 
what would have been unproductively con¬ 
sumed is applied to production, and there is 
a real increase of capital. The effect ceases, 
and a counter-process takes place, when the 
additional credit is stopped and the notes 
called in. 


or less of capital, but who from their 
occupations, or for want of the ne¬ 
cessary skill and knowledge, cannot 
personally superintend its employment, 
would derive no benefit from it: their 
funds would either lie idle, or would 
be, perhaps, wasted and annihilated in 
unskilful attempts to make them yield 
a profit. All this capital is now lent 
at interest, and made available for 
production. Capital thus circum¬ 
stanced forms a large portion of the 
productive resources of any commercial 
country ; and is naturally attracted to 
those producers or traders who, being 
in the greatest business, have the 
means of employing it to most advan¬ 
tage ; because such are both the most 
desirous to obtain it, and able to give 
the best security. Although, therefore, 
the productive funds of the country are 
not increased by credit, they are called 
into a more complete state of produc¬ 
tive activity. As the confidence on 
which credit is grounded extends itself, 
means are developed by which even 
the smallest portions of capital, the 
sums which each person keeps by him 
to meet contingencies, are made avail¬ 
able for productive uses. The principal 
instruments for this purpose are banks 
of deposit. Where these do not exist, 
a prudent person must keep a sufficient 
sum unemployed in his own possession, 
to meet every demand which he has 
even a slight reason for thinking him¬ 
self liable to. When the practice, 
however, has grown up of keeping this 
reserve not in his own custody but 
with a banker, many small sums, pre¬ 
viously lying idle, become aggregated in 
the banker’s hands; and the banker, 
being taught by experience what pro¬ 
portion of the amount is likely to be 
wanted in a given time, and knowing 
that if one depositor happens to require 
more than the average, another will 
require less, is able to-lend the re¬ 
mainder, that is, the far greater part, 
to producers and dealers: thereby 
adding the amount, not indeed to the 
capital in existence, but to that in em¬ 
ployment, and making a corresponding 
addition to the aggregate production 
of the community. 

While credit is thus indispensable 



CREDIT AS A SUBSTITUTE FOR MONEY. 


for rendering the whole capital of the 
country productive, it is also a means 
by which the industrial talent of the 
country is turned to better account for 
purposes of production. Many a person 
who has cither no capital of his own, 
or very little, but who has qualifica¬ 
tions for business which are known and 
appreciated by some possessors of ca¬ 
pital, is enabled to obtain either ad¬ 
vances in money, or more frequently 
goods on credit, by which his indus¬ 
trial capacities are made instrumental 
to the increase of the public wealth; 
and this benefit will be reaped far more 
largely, whenever, through better laws 
and better education, the community 
shall have made such progress in in¬ 
tegrity, that personal character can be 
accepted as a sufficient guarantee not 
only against dishonestly appropriating, 
but against dishonestly risking, what 
belongs to another. 

Such are, in the most general point 
of view, the uses of credit to the 
productive resources of the world. 
But these considerations only apply to 
the credit given to the industrious 
classes—to producers and dealers. 
Credit given by dealers to unproduc¬ 
tive consumers is never an addition, 
but always a detriment, to the sources 
of public wealth. It makes over in 
temporary use, not the capital of the 
unproductive classes to the productive, 
but that of the productive to the un¬ 
productive. If A, a dealer, supplies 
goods to B, a landowner or annuitant, 
to be paid for at the end of five years, 
as much of the capital of A as is equal 
to the value of these goods, remains 
for five years unproductive. During 
such a period, if payment had been 
made at once, the sum might have been 
several times expended and replaced, 
and goods to the amount might have 
been several times produced, consumed, 
and reproduced: consequently B’s 
withholding 100/. for five years, even if 
he pays at last, has cost to the labour¬ 
ing classes of the community during 
that period an absolute loss of probably 
several times that amount. A, indi¬ 
vidually, is compensated, by putting a 
higher price upon his goods, which is 
ultimately paid by B : but there is no 


311 

compensation made to the labouring 
classes, the chief sufferers by every 
diversion of capital, whether perma¬ 
nently or temporarily, to unproductive 
uses. The country has had 100/. less 
of capital during those five years, B 
having taken that amount from A’s 
capital, and spent it unproductively, in 
anticipation of his own means, and 
having only after five years set apart 
a sum from his income and converted 
it into capital for the purpose of indem¬ 
nifying A. 

§ 3. Thus far of the general func¬ 
tion of Credit in production. It is not 
a productive power in itself, though, 
without it, the productive powers al¬ 
ready existing could not be brought 
into complete employment. But a more 
intricate portion of the theory of 
Credit is its influence on prices; the 
chief cause of most of the mercantile 
phenomena which perplex observers. 
In a state of commerce in which much 
credit is habitually given, general 
prices at any moment depend much 
more upon the state of credit than upon 
the quantity of money. For credit, 
though it is not productive power, is 
purchasing power ; and a person who, 
having credit, avails himself of it in 
the purchase of goods, creates just as 
much demand for the goods, and tends 
quite as much to raise their price, as 
if he made an equal amount of pur¬ 
chases with ready money. 

The credit which we are now called 
upon to consider, as a distinct pur¬ 
chasing power, independent of money, 
is of course not credit in its simplest 
form, that of money lent by one person 
to another, and paid directly into his 
hands; for when the borrower expends 
this in purchases, he makes the pur¬ 
chases with money, not credit, and ex¬ 
erts no purchasing power over and 
above that conferred by the money. 
The forms of credit which create pur¬ 
chasing power, are those in which no 
money passes at the time, and very 
often none passes at all, the transac¬ 
tions being included with a mass of 
other transactions in an account, and 
nothing paid but a balance. This 
takes place in a variety of ways, 



312 BOOK III. CH 

which we shall proceed to examine, 
beginning, as is our custom, with the 
simplest. 

First: Suppose A and B to be two 
dealers, who have transactions with 
each other both as buyers and as 
sellers. A buys from B on credit. B 
does the like with respect to A. At 
the end of the year, the sum of A’s 
debts to B is set against the sum of 
B’s debts to A, and it is ascertained 
to which side a balance is due. This 
balance, which may be less than the 
amount of many of the transactions 
singly, and is necessarily less than the 
sum of the transactions, is all that is 
paid in money: and perhaps even 
this is not paid, but carried over in an 
account current to the next year. A 
single payment of a hundred pounds 
may in this manner suffice to liquidate 
a long series of transactions, some of 
them to the value of thousands. 

But secondly: The debts of A to B 
iray be paid without the intervention 
of money, even though there be no 
reciprocal debts of B to A. A may 
satisfy B by making over to him a debt 
due to himself from a third person, C. 
This is conveniently done by means of 
a written instrument, called a bill of 
exchange, which is, in fact, a transfer¬ 
able order b} r a creditor upon his debtor, 
and when accepted by the debtor, that 
is, authenticated by his signature, be¬ 
comes an acknowledgment of debt. 

§ 4. Bills of exchange were first in¬ 
troduced to save the expense and risk 
of transporting the precious metals 
from place to place. “ Let it be sup¬ 
posed,” says Mr. Henry Thornton,* 
“ that there are in London ten manufac¬ 
turers who sell their article to ten shop¬ 
keepers in York, by whom it is retailed ; 
and that there are in York ten manu¬ 
facturers of another commodity, who 
sell it to ten shopkeepers in London. 
There would be no occasion for the ten 
shopkeepers in London to send yearly 

* Enquiry into the Nature and Effects of 
the Paper Credit of Great Britain , p. 24. 
This work, published in 1802, is even now 
the clearest exposition that I am acquainted 
with, in the English language, of the modes 
in which credit is given and taken in a mer¬ 
cantile community. 


APTER XI. § 4. 

to York guineas for the payment of the 
York manufacturers, and for the ten 
York shopkeepers to send yearly as 
many guineas to London. It would 
only be necessary for the York manu¬ 
facturers to receive from each of the 
shopkeepers at their own door the 
money in question, giving in return 
letters which should acknowledge the 
receipt of it; and which should also 
direct the money, lying ready in the 
hands of their debtors in London, to 
be paid to the London manufacturers, 
so as to cancel the debt in London in 
the same manner as that at York. The 
expense and the risk of all transmission 
of money would thus be saved. Letters 
ordering the transfer of the debt are 
termed, in the language of the present 
day, bills of exchange. They are bills 
by which the debt of one person is ex¬ 
changed for the debt of another; and 
the debt, perhaps, which is due in one 
place, for the debt due in another.” 

Bills of exchange having been found 
convenient as means of paying debts at 
distant places without the expense of 
transporting the precious metals, their 
use was afterwards greatly extended 
from another motive. It is usual in 
every trade to give a certain length of 
credit for goods bought: three months, 
six months, a year, even two years, 
according to the convenience or custom 
of the particular trade. A dealer who 
has sold goods, for which he is to be 
paid in six months, but who desires to 
receive payment sooner, draws a bill 
on his debtor payable in six months, 
and gets the bill discounted by a banker 
or other money-lender, that is, transfers 
the bill to him, receiving the amount, 
minus interest for the time it has still 
to run. It has become one of the chief 
functions of bills of exchange to serve 
as a means by which a debt due from 
one person can thus be made available 
for obtaining credit from another. The 
convenience of the expedient has led 
to the frequent creation of bills of ex¬ 
change not grounded on any debt pre¬ 
viously due to the drawer of the bill by 
the person on whom it is drawn. These 
are called accommodation bills; and 
sometimes, with a tinge of disapproba¬ 
tion, fictitious bills. Their nature is so 



CREDIT AS A SUBSTITUTE FOR MOREY. 


clearly stated, and with such judicious 
remarks, by the author whom I have 
just quoted, that I shall transcribe the 
entire passage.* 

“A, being in want of 100Z., requests 
B to accept a note or bill drawn at two 
months, which B, therefore, on the face 
of it, is bound to pay; it is understood, 
however, that A will take care either to 
discharge the bill himself, or to furnish 
13 with the means of paying it. A 
obtains ready money for the bill on the 
joint credit of the two parties. A ful¬ 
fils his promise of paying it when due, 
and thus concludes the transaction. 
This service rendered by B to A is, 
however, not unlikely to be requited, 
at a more or less distant period, by a 
similar acceptance of a bill on A, drawn 
and discounted for B’s convenience. 

“ Let us now compare such a bill 
with a real bill. Let us consider in 
what points they differ or seem to 
differ ; and in what they agree. 

“ They agree, inasmuch as each is a 
discountable article; each has also been 
•created for the purpose of being dis¬ 
counted ; and each is, perhaps, dis¬ 
counted in fact. Each, therefore, serves 
equally to supply means of speculation 
to the merchant. So far, moreover, as 
bills and notes constitute what is called 
the circulating medium, or paper cur¬ 
rency of the country, and prevent the 
use of guineas, the fictitious and the 
real bill are upon an equality; and if 
the price of commodities be raised in 
proportion to the quantity of paper 
currency, the one contributes to that 
rise exactly in the same manner as the 
other. 

“ Before we come to the points in 
which they differ, let us advert to one 
point in which they are commonly sup¬ 
posed to be unlike ; but in which they 
cannot be said always or necessarily to 
differ. 

“Real notes (it is sometimes said) 
represent actual property. There are 
actual goods in existence, which are the 
counterpart to every real note. Notes 
which are not drawn in consequence of 
a sale of goods, are a species of false 
wealth, by -which a nation is deceived. 

* Pp. 29-3.% 


313 

These supply only an imaginary capital; 
the others indicate one that is real. 

“ In answer to this statement it may • 
be observed, first, that the notes given 
in consequence of a real sale of goods 
cannot be considered as on that account 
certainly representing any actual pro¬ 
perty. Suppose that A sells 100Z. worth 
of goods to B at six months credit, and 
takes a bill at six months for it; and 
that B, within a month after, sells the 
same goods, at a like credit, to C, taking 
a like bill; and again, that C, after 
another month, sells them to D, taking 
a like bill, and so on. There may then, 
at the end of six months, be six bills of 
100Z. each, existing at the same time; 
and every one of these may possibly 
have been discounted. Of all these 
bills, then, only one represents any 
actual property. 

“ In order to justify the supposition 
that a real bill (as it is called) repre¬ 
sents actual property, there ought to be 
some power in the bill-holder to prevent 
the property which the bill represents, 
from being turned to other purposes 
than that of paying the bill in question. 
No such power exists ; neither the man 
who holds the real bill, nor the man 
who discounts it, has any property in 
the specific goods for which it was 
given : he as much trusts to the general 
ability to pay of the giver of the bill, as 
the holder of any fictitious bill does. 
The fictitious bill may, in many cases, 
be a bill given by a person having a 
large and known capital, a part of 
which the fictitious bill mav be said in 

V 

that case to represent. The supposition 
that real bills represent property, and 
that fictitious bills do not, seems, there¬ 
fore, to be one by which more than 
justice is done to one of these species 
of bills, and something less than justice 
to the other. 

“ We come next to some points in 
which they differ. 

“First, the fictitious note, or note of 
accommodation, is liable to the ob¬ 
jection that it professes to be what it 
is not. This objection, however, lies 
only against those fictitious bills which 
are passed as real. In many cases, it 
is sufficiently obvious what they are. 
Secondly, the fictitious bill is, in gene- 



BOOK III. CHAPTER XI. § 5. 


314 

ral, less likely to be punctually paid 
than the real one. There is a general 
presumption, that the dealer in fictitious 
bills is a man who is a more adven¬ 
turous speculator than he who carefully 
abstains from them. It follows, thirdly, 
that fictitious bills, besides being less 
safe, are less subject to limitation as to 
their quantity. The extent of a man’s 
actual sales forms some limit to the 
amount of his real notes; and as it is 
highly desirable in commerce that 
credit should be dealt out to all per¬ 
sons in some sort of regular and due 
proportion, the measure of a man’s 
actual sales, certified by the appear¬ 
ance of his bills drawn in virtue of 
those sales, is some rule in the case, 
though a very imperfect one in many 
respects. 

“ A fictitious bill, or bill of accom¬ 
modation, is evidently, in substance, the 
same as any common promissory note; 
and even better in this respect, that 
there is but one security to the pro¬ 
missory note, whereas in the case of 
the bill of accommodation there are 
two. So much jealousy subsists lest 
traders should push their means of 
raising money too far, that paper, the 
same in its general nature with that 
which is given, being the only paper 
which can be given, by men out of 
business, is deemed somewhat discre¬ 
ditable when coming from a merchant. 
And because such paper, when in the 
merchant’s hand, necessarily imitates 
the paper which passes on the occasion 
of a sale of goods, the epithet fictitious 
has been cast upon it; an epithet 
which has seemed to countenance the 
confused and mistaken notion, that 
there is something altogether false and 
delusive in the nature of a certain part 
noth of the paper and of the apparent 
wealth of the country.” 

A bill of exchange, when merely 
discounted, and kept in the portfolio 
of the discounter until it falls due, does 
not perform the functions or supply the 
place of money, but is itself bought and 
sold for money. It is no more currency 
than the public funds, or any other 
securities. But when a bill drawn 
upon one person is paid to another (or 
even to the same person) in discharge 


of a debt or a pecuniary claim, it does 
something for which, if the bill did not 
exist, money would be required: it 
performs the functions of currency. 
This is a use to which bills of exchange 
are often applied. “ They not only,” 
continues Mr. Thornton,* “ spare the 
use of ready money; they also occupy 
its place in many cases. Let us 
imagine a farmer in the country to dis¬ 
charge a debt of 10Z. to his neighbour¬ 
ing grocer, by giving him a bill for 
that sum, drawn on his comfactor in 
London for grain sold in the metro¬ 
polis ; and the grocer to transmit the 
bill, he having previously indorsed it, 
to a neighbouring sugar-baker, in dis¬ 
charge of a like debt; and the sugar- 
baker to send it, when again indorsed, 
to a West India merchant in an out- 
port, and the West India merchant to 
deliver it to his country banker, who 
also indorses it, and sends it into further 
circulation. The bill in this case will 
have effected five payments, exactly as 
if it were a lOh note payable to bearer 
on demand. A multitude of bills pass 
between trader and trader in the 
country, in the manner which has been 
described; and they evidently form, in 
the strictest sense, a part of the circu¬ 
lating medium of the kingdom.” 

Many bills, both domestic and 
foreign, are at last presented for pay¬ 
ment quite covered with indorsements, 
each of which represents either a fresh 
discounting, or a pecuniary transaction 
in which the bill has performed the 
functions of money. Within the pre¬ 
sent generation, the circulating medium 
of Lancashire for sums above five 
pounds, was almost entirely composed 
of such bills. 

§ 5. A third form in which credit 
is employed as a substitute for cur¬ 
rency, is that of promissory notes. A 
bill drawn upon any one and accepted 
by him, and a note of hand by him 
promising to pay the same sum, are, as 
far as he is concerned, exactly equiva¬ 
lent, except that the former commonly 
bears interest and the latter generally 
does not; and that the former is com¬ 
monly payable only after a certain 
* P. 40. 





CREDIT AS A SUBSTITUTE FOR MONEY. 315 


lapse of time, and the latter payable 
at sight. But it is chiefly in the latter 
form that it has become, in commercial 
countries, an express occupation to 
issue such substitutes for money. 
Dealers in money (as lenders by pro¬ 
fession are improperly called) desire, 
like other dealers, to stretch their 
operations beyond what can be carried 
on by their own means : they wish to 
lend, not their capital merely, but their 
credit, and not only such portion of 
their credit as consists of funds actually 
deposited with them, but their power 
of obtaining credit from the public 
generally, so far as they think they 
can safely employ it. This is done in 
a very convenient manner by lending 
their own promissory notes payable to 
bearer on demand: the borrower being 
willing to accept these as so much 
money, because the credit of the lender 
makes other people willingly receive 
them on the same footing, in purchases 
or other payments. These notes, there¬ 
fore, perform all the functions of cur¬ 
rency, and render an equivalent amount 
of money which was previously in cir¬ 
culation, unnecessary. As, however, 
being payable on demand, they may 
be at any time returned on the issuer, 
and money demanded for them, he 
must, on pain of bankruptcy, keep by 
him as much money as will enable 
him to meet any claims of that sort 
which can be expected to occur within 
the time necessary for providing him¬ 
self with more: and prudence also re¬ 
quires that he should not attempt to 
issue notes beyond the amount which 
experience shows can remain in circu¬ 
lation without being presented for 
payment. 

The convenience of this mode of (as 
it were) coining credit, having once 
been discovered, governments have 
availed themselves of the same expe¬ 
dient, and have issued their own pro¬ 
missory notes in payment of their 
expenses; a resource the more useful, 
because it is the only mode in which 
they are able to borrow money without 
paying interest, their promises to pay 
on demand being, in the estimation of 
the holders, equivalent to money in 
hand. The practical differences be¬ 


tween such government notes and the 
issues of private bankers, and the 
further diversities of which this class 
of substitutes for money are suscepti¬ 
ble, will be considered presently. 

§ 6. A fourth mode of making 
credit answer the purposes of money, 
by which, when carried far enough, 
money may be very completely super¬ 
seded, consists in making payments by 
cheques. The custom of keeping the 
spare cash reserved for immediate use 
or against contingent demands, in the 
hands of a banker, and making all 
payments, except small ones, by 
orders on bankers, is in this country 
spreading to a continually larger por¬ 
tion of the public. If the person 
making the payment, and the person 
receiving it, keep their money with 
the same banker, the payment takes 
place without any intervention of 
money, by the mere transfer of its 
amount in the banker’s books from the 
credit of the payer to that of the re¬ 
ceiver. If all persons in London kept 
their cash at the same banker’s, and 
made all their payments by means of 
cheques, no money would be required 
or used for any transactions beginning 
and terminating in London. This ideal 
limit is almost attained in fact, so far 
as regards transactions between dealers. 
It is chiefly in the retail transactions 
between dealers and consumers, and in 
the payment of wages, that money or 
bank notes now pass, and then only 
when the amounts are small. In 
London, even shopkeepers of any 
amount of capital or extent of business 
have generally an account with a 
banker; which, besides the safety and 
convenience of the practice, is to their 
advantage in another respect, by giving 
them an understood claim to have 
their bills discounted in cases when 
they could not otherwise expect it. As 
for the merchants and larger dealers, 
they habitually make all payments in 
the course of their business by cheques. 
They do not, however, all deal with the 
same banker, and when A gives a 
cheque to B, B usually pays it not 
into the same but into some other 
bank. But the convenience of busi- 





BOOK III. CHAPTER XII. § 1. 


316 

ness has given birth to an arrangement 
which makes all the banking houses of 
the City of London, for certain pur¬ 
poses, virtually one establishment. A 
banker does not send the cheques 
which are paid into his banking house, 
to the banks on which they are drawn, 
and demand money for them. There 
is a building called the Clearing house, 
to which every City banker sends, each 
afternoon, all the cheques on other 
bankers which he has received during 
the day, and they are there exchanged 
for the cheques on him which have 
come into the hands of other bankers, 
the balances only being paid in money; 
or even these not in money, but in 
cheques on the Bank of England. By 
this contrivance, all the business trans¬ 
actions of the City of London during 
that day, amounting often to millions 
of pounds, and a vast amount besides 
of country transactions, represented by 
bills which country bankers have 


drawn upon their London correspon 
dents, are liquidated by payments not 
exceeding on the average 200,000/.* 
By means of the various instruments 
of credit which have now been ex¬ 
plained, the immense business of a 
country like Great Britain is trans¬ 
acted with an amount of the precious 
metals surprisingly small; many times 
smaller, in proportion to the pecuniary 
value of the commodities bought and 
sold, than is found necessary in France, 
or any other country in which, the 
habit and the disposition to give credit 
not being so generally diffused, these 
“ economizing expedients,” as they 
have been called, are not practised to 
the same extent. What becomes of 
the money thus superseded in its func¬ 
tions, and by what process it is made 
to disappear from circulation, are 
questions the discussion of which must 
be for a short time postponed. 


CHAPTER XII. 

INFLUENCE OF CREDIT ON PRICES. 


§ 1. Having now formed a general 
idea of the modes in which credit is 
made available as a substitute for 
money, we have to consider in what 
manner the use of these substitutes 
affects the value of money, or, what is 
equivalent, the prices of commodities. 
It is hardly necessary to say that the 
permanent value of money—the natural 
and average prices of commodities— 
are not in question here. These are 
determined by the cost of producing or 
of obtaining the precious metals. An 
Ounce of gold or silver will in the long 
run exchange for as much of every 
other commodity, as can be produced 
or imported at the same cost with 
itself. And an order, or note of hand, 
or bill payable at sight, for an ounce of 
gold, while the credit of the giver is 
unimpaired, is worth neither more nor 
less than the gold itself. 

It is not, however, with ultimate or 


average, but with immediate and tem¬ 
porary prices, that we are now con¬ 
cerned. These, as we have seen, may 
deviate very widely from the standard 
of cost of production. Among other 
causes of fluctuation, one we have 
found to be, the quantity of money in 
circulation. Other things being the 
same, an increase of the money in cir¬ 
culation raises prices, a diminution 
lowers them. If more money is thrown 
into circulation than the quantity 
which can circulate at a value con- 

* According to Mr. Tooke (Enquiry into 
the Currency Principle, p. 27) the adjustments 
at the clearing house “ in the year 1839 
amounted to 954,401,6002., making an ave¬ 
rage amount of payments of upwards of 
3,000,0002. of bills of exchange and cheques 
daily effected through the medium of little 
more than 200,0002. of bank notes.” At pre¬ 
sent a very much greater amount of trans¬ 
actions is daily liquidated, without bank 
notes at all, cheques on the Bank of 
England supplying their place. 





INFLUENCE OF CREDIT ON PRICES. 


formable to its cost of production, the 
value of money, so long as the excess 
lasts, will remain below the standard 
of cost of production, and general 
prices will be sustained above the 
natural rate. 

But we have now found that there 
are other things, such as bank notes, 
bills of exchange, and cheques, which 
circulate as money, and perform all 
functions of it: and the question 
arises, Do these various substitutes 
operate on prices in the same manner 
as money itself? Does an increase in 
the quantity of transferable paper tend 
to raise prices, in the same manner 
and degree as an increase in the 
quantity of money ? There has been 
no small amount of discussion on this 
point among writers on currency, with¬ 
out any result so conclusive as to have 
yet obtained general assent. 

I apprehend that bank notes, bills, 
or cheques, as such, do not act on 
prices at all. What does act on prices 
is Credit, in whatever shape given, 
and whether it gives rise to any trans¬ 
ferable instruments capable of passing 
into circulation, or not. 

I proceed to explain and substantiate 
this opinion. 

§ 2. Money acts upon prices in no 
other way than by being tendered in 
exchange for commodities. The de¬ 
mand which influences the prices of 
commodities consists of the money 
offered for them. But the. money 
offered, is not the same thing with the 
money possessed. It is sometimes less, 
sometimes very much more. In the 
long run indeed, the money which 
people lay out will be neither more nor 
less than the money which they have 
to lay out: but this is far from being 
the case at any given time. Sometimes 
they keep money by them for fear of 
an emergency, or in expectation of a 
more advantageous opportunity for 
expending it. In that case the money 
is said not to be in circulation: in 
plainer language, it is not offered, nor 
about to be offered, for commodities. 
Money not in circulation has no effect 
on prices. The converse, however, is 
v much commoner case; people make 


81? 

purchases with money not in their 
possession. An article, for instance, 
which is paid for by a cheque on a 
banker, is bought with money which 
not only is not in the payer's posses¬ 
sion, but generally not even in the 
banker’s, having been lent by him (all 
but the usual reserve) to other persons. 
We just now made the imaginary sup¬ 
position that all persons dealt with a 
bank, and all with the same bank r 
payments being universally made by- 
cheques. In this ideal case, there' 
would be no money anywhere except 
in the hands of the banker; who might 
then safely part with all of it, by sell¬ 
ing it as bullion, or lending it, to be 
sent out of the country in exchange 
for goods or foreign securities. But 
though there would then be no money 
in possession, or ultimately perhaps- 
even in existence, money would be- 
offered, and commodities bought with 
it, just as at present. People would 
continue to reckon their incomes and 
their capitals in money, and to make 
their usual purchases with orders for 
the receipt of a thing which would 
have literally ceased to exist. There 
would be in all this nothing to com¬ 
plain of, so long as the money-, in dis¬ 
appearing, left an equivalent value in 
other things, applicable when required 
to the reimbursement of those to whom 
the money originally belonged. 

In the case however of payment by 
cheques, the purchases are at any rate 
made, though not with money in the 
buyer’s possession, yet with money to 
which he has a right. But he may 
make purchases with money which he 
only expects to have, or even only 
pretends to expect. He may obtain 
goods in return for his acceptances 
payable at a future time; or on his 
note of hand; or on a simple book 
credit, that is, on a mere promise to 
pay. All these purchases have exactly 
the same effect on price, as if they- 
were made with ready money. The 
amount of purchasing power which a 
person can exercise is composed of all 
the money in his possession or due to 
him, and of all his credit. For exer¬ 
cising the whole of this power he finds 
a sufficient motive only under peculiar 





318 BOOK in. CHAPTER XII. § 3. 


circumstances; but he always pos¬ 
sesses it; and the portion of it which 
he at any time does exercise, is the 
measure of the effect which he produces 
on price. 

Suppose that, in the expectation 
that some commodity will rise in price, 
he determines, not only to invest in it 
all his ready money, but to take up on 
credit, from the producers or importers, 
as much of it as their opinion of his 
resources will enable him to obtain. 
Every one must see that by thus acting 
he produces a greater effect on price, 
than if he limited his purchases to the 
money he has actually in hand. He 
creates a demand for the article to the 
full amount of his money and credit 
taken together, and raises the price 
proportionally to both. And this effect 
is produced, though none of the written 
instruments called substitutes for cur¬ 
rency may be called into existence; 
though the transaction may give rise 
to no bill of exchange, nor to the issue 
of a single bank note. The buyer, 
instead of taking a mere book credit, 
might have given a bill for the amount; 
or might have paid for the goods with 
bank notes borrowed for that purpose 
from a banker, thus making the pur¬ 
chase not on his own credit with the 
seller, but on the banker’s credit with 
the seller, and his own with the banker. 
Had he done so, he would have pro¬ 
duced as great an effect on price as by 
a simple purchase to the same amount 
on a book credit, but no greater effect. 
The credit itself, not the form and 
mode in which it is given, is the 
operating cause. 

§ 3. The inclination of the mercan¬ 
tile public to increase their demand for 
commodities by making use of all or 
much of their credit as a purchasing 
power, depends on their expectation of 
profit. When there is a general im¬ 
pression that the price of some com¬ 
modity is likely to rise, from an extra 
demand, a short crop, obstructions to 
importation, or any other cause, there 
is a disposition among dealers to in¬ 
crease their stocks, in order to profit 
by the expected rise. This disposition 
tends in itself to produce the effect 


which it looks forward to, a rise of 
price: and if the rise is considerable 
and progressive, other speculators are 
attracted, who, so long as the price has 
not begun to fall, are willing to believe 
that it wall continue rising. These, by 
further purchases, produce a further 
advance: and thus a rise of price for 
which there were originally some ra¬ 
tional grounds, is often heightened by 
merely speculative purchases, until it 
greatly exceeds what the original 
grounds will justify. After a time 
this begins to be perceived; the price 
ceases to rise, and the holders, think¬ 
ing it time to realize their gains, are 
anxious to sell. Then the price begins 
to decline: the holders rush into the 
market to avoid a still greater loss, 
and, few being willing to buy in a 
falling market, the price falls much 
more suddenly than it rose. Those 
who have bought at a higher price 
than reasonable calculation justified, 
and who have been overtaken by the 
revulsion before they had realized, are 
losers in proportion to the greatness of 
the fall, and to the quantity of the 
commodity which they hold, or have 
bound themselves to pay for. 

Now all these effects might take 
place in a community to which credit 
was unknown : the prices of some com¬ 
modities might rise from speculation, 
to an extravagant height, and then 
fall rapidly back. But if there were 
no such thing as credit, this could 
hardly happen with respect to com¬ 
modities generally. If all purchases 
were made with ready money, the 
payment of increased prices for some 
articles would draw an unusual pro¬ 
portion of the money of the community 
into the markets for those articles, and 
must therefore draw it away from some 
other class of commodities, and thus 
lower their prices. The vacuum might, 
it is true, be partly filled up by increased 
rapidity of circulation; and in this 
manner the money of the community 
is virtually increased in a time of spe¬ 
culative activity, because people keep 
little of it by them, but hasten to lay 
it out in some tempting adventure as 
soon as possible after they receive it. 
This resource, however, is limited: on 



319 


INFLUENCE OF CREDIT ON PRICES. 


the whole, people cannot, while the 
quantity of money remains the same, 
lay out much more of it in some things, 
without laying out less in others. But 
what they cannot do by ready money, 
they can do by an extension of credit. 
When people go into the market and 
purchase with money which they hope 
to receive hereafter, they are drawing 
upon an unlimited, not a limited fund. 
Speculation, thus supported, may he 
going on in any number of commodi¬ 
ties, without disturbing the regular 
course of business in others. It might 
even he going on in all commodities at 
once. We eould imagine that in an 
epidemic fit of the passion of gambling, 
all dealers, instead of giving only their 
accustomed orders to the manufac¬ 
turers or growers of their commodity, 
commenced buying up all of it which 
they could procure, as far as their 
capital and credit would go. All prices 
would rise enormously, even if there 
were no increase of money, and no 
paper credit, but a mere extension of 
purchases on book credits. After a 
time those who had bought would 
wish to sell, and prices would collapse. 

This is the ideal extreme case of 
what is called a commercial crisis. 
There is said to be a commercial crisis, 
when a great number of merchants and 
traders at once, either have, or appre¬ 
hend that they shall have, a difficulty 
in meeting their engagements. The 
most usual cause of this general em¬ 
barrassment, is the recoil of prices 
after they have been raised by a spirit 
of speculation, intense in degree, and 
extending to many commodities. Some 
accident, which excites expectations of 
rising prices, such as the opening of a 
new foreign market, or simultaneous 
indications of a short supply of several 
great articles of commerce, sets specu¬ 
lation at work in several leading de¬ 
partments at once. The prices rise, 
and the holders realize, or appear to 
have the power of realizing, great 
gains. In certain states of the public 
mind, such examples of rapid increase 
of fortune call forth numerous imita¬ 
tors, and speculation not only goes 
much beyond what is justified by the 
original grounds for expecting rise of 


price, hut extends itself to articles in 
which there never was any such gi-ound: 
these, however, rise like the rest as 
soon as speculation sets in. At periods 
of this kind, a great extension of credit 
takes place. Not only do all whom 
the contagion reaches, employ their 
credit much more freely than usual; 
hut they really have more credit, be¬ 
cause they seem to be making unusual 
gains, and because a generally reckless 
and adventurous feeling prevails, which 
disposes people to give as well as take 
credit more largely than at other times, 
and give it to persons not entitled to 
it. In this manner, in the celebrated 
speculative year 1825, and at various 
other periods during the present cen¬ 
tury, the prices of many of the principal 
articles of commerce rose greatly, with¬ 
out any fall in others, so that general 
prices might, without incorrectness, he 
said to have risen. When, after such 
a rise, the reaction comes, and prices 
begin to fall, though at first perhaps 
only through the desire of the holders 
to realize, speculative purchases cease : 
but were this all, prices would only 
fall to the level from which they rose, 
or to that which is justified by the state 
of the consumption and of the supply. 
They fall, however, much lower; for 
as, when prices were rising, and every¬ 
body apparently making a fortune, it 
was easy to obtain almost any amount 
of credit, so now, when everybody 
seems to be losing, and many fail en¬ 
tirely, it is with difficulty that firms of 
known solidity can obtain even the 
credit to which they are accustomed, 
and which it is the greatest inconve¬ 
nience to them to be without; because 
all dealers have engagements to fulfil, 
and nobody feeling sure that the por¬ 
tion of his means which he has en¬ 
trusted to others will be available in 
time, no one likes to part with ready 
money, or to postpone his claim to it. 
To these rational considerations there 
is superadded, in extreme cases, a 
panic as unreasoning as the previous 
over-confidence; money is borrowed for 
short periods at almost any rate of in¬ 
terest, and sales of goods for immediate 
payment are made at almost any sacri¬ 
fice. Thus general prices, during a com- 



335 BOOK III. CHAPTER XII. § 4. 


mercial revulsion, fall as much below 
the usual level, as during the previous 
period of speculation they have risen 
above it: the fall, as well as the rise, 
originating not in anything affecting 
money, but in the state of credit; 
an unusually extended employment of 
credit during the earlier period, fol¬ 
lowed by a great diminution, never 
amounting however to an entire cessa¬ 
tion of it, in the later. 

It is not, however, universally true 
that the contraction of credit, charac¬ 
teristic of a commercial crisis, must 
have been preceded by an extraordinary 
and irrational extension of it. There 
are other causes; and one of the most 
recent crises, that of 1847, is an in 
stance, having been preceded by no 
particular extension of credit, and by 
no speculations; except those in rail¬ 
way shares, which, though in many 
cases extravagant enough, yet being 
earned on mostly with that portion of 
means which the speculators could afford 
to lose, were not calculated to produce 
the wide-spread ruin which arises from 
vicissitudes of price in the commodi¬ 
ties in which men habitually deal, and 
in which the bulk of their capital is 
invested. The crisis of 1847 belonged 
to another class of mercantile pheno¬ 
mena. There occasionally happens a 
concurrence of circumstances tending 
to withdraw from the loan market a 
considerable portion of the capital 
which usually supplies it. These cir¬ 
cumstances, in the present case, were 
great foreign payments, (occasioned by 
a high price of < otton and an unpre¬ 
cedented importation of food,) together 
with the continual demands on the cir¬ 
culating capital of the country by rail¬ 
way calls and the loan transactions of 
railway companies, for the purpose of 
being converted into fixed capital and 
made unavailable for future lending. 
These various demands fell princi¬ 
pally, as such demands always do, on 
the loan market. A great, though not 
the greatest part of the imported food, 
was actually paid for by the proceeds 
of a government loan. The extra pay¬ 
ments which purchasers of corn and 
cotton, and railway shareholders, found 
themselves obliged to make, were either 


made with their own spare cash, or with 
money raised for the occasion. On the 
first supposition, they were made by 
withdrawing deposits from bankers, 
and thus cutting off a part of the- 
streams which fed the loan market;: 
on the second supposition, they were- 
made by actual drafts on the loan 
market, either by the sale of securities, 
or by taking up money at interest. This 
combination of a fresh demand for 
loans, with a curtailment of the capital 
disposable for them, raised the rate of 
interest, and made it impossible to 
borrow except on the very best se¬ 
curity. Some firms, therefore, which, 
by an improvident and unmercantile 
mode of conducting business had al¬ 
lowed their capital to become eithei 
temporarily or permanently unavail¬ 
able, became unable to command that 
perpetual renewal of credit which had. 
previously enabled them to struggle 
on. These firms stopped payment: 
their failure involved more or less 
deeply many other firms which had 
trusted them; and, as usual in such 
cases, the general distrust, commonly 
called a panic, began to set in, and 
might have produced a destruction of 
credit equal to that of 1825, had not 
circumstances which may almost be- 
called accidental, given to a very 
simple measure of the government 
(the suspension of the Bank Charter- 
Act of 1844) a fortunate power of 
allaying panic, to which, when con¬ 
sidered in itself, it had no sort of 
claim.* 

§ 4. The general operation of credit 
upon prices being such as we have 
described, it is evident that if any par¬ 
ticular mode or form of credit is cal¬ 
culated to have a greater operation on 
prices than others, it can only be by 
giving greater facility, or greater en¬ 
couragement, to the multiplication of 

* The commercial difficulties, not how¬ 
ever amounting to a commercial crisis, of 
1864, had essentially the same origin. 
Heavy payments for cotton imported at high 
prices, and large investments in banking and 
other joint-stock projects, combined with 
the loan operations of foreign governments, 
made such large drafts upon the loan market 
as to raise the rate of discount on mercantile- 
bills as high as nine per cent. 



INFLUENCE OF CREDIT ON PRICES. 321 


credit transactions generally. If bank 
notes, for instance, or bills, have a 
greater effect on prices than book 
credits, it is not by any difference in 
the transactions themselves, which are 
essentially the same, whether taking 
place in the one way or in the other: 
it must be that there are likely to be 
more of them. If credit is likely to 
he more extensively used as a pur¬ 
chasing power when bank notes or 
bills are the instruments used, than 
when the credit is given by mere 
entries in an account, to that extent 
and no more there is ground for as¬ 
cribing to the former a greater power 
over the markets than belongs to the 
latter. 

Now it appears that there is some 
such distinction. As far as respects 
the particular transaction, it makes no 
difference in the effect on price whether 
A buys goods of B on simple credit, or 
gives a bill for them, or pays for them 
with bank notes lent to him by a banker 
C. The difference is in a subsequent 
stage. If A has bought the goods on 
a book credit, there is no obvious or 
convenient mode by which B can make 
A’s debt to him a means of extending 
his own credit. 'Whatever credit he 
has, will be due to the general opinion 
entertained of his solvency: he cannot 
specifically pledge A’s debt to a third 
person, as a security for money lent or 
goods bought. But if A has given him 
a bill for the amount, he can get this 
discounted, which is the same thing as 
borrowing money on the joint credit of 
A and himself: or he may pay away 
the bill in exchange for goods, which 
is obtaining goods on the same joint 
credit. In either case, here is a second 
credit transaction, grounded on the 
first, and which would not have taken 
place if the first had been transacted 
without the intervention of a bill. Nor 
need the transactions end here. The 
bill may be again discounted, or again 
paid away for goods, several times be¬ 
fore it is itself presented for payment. 
Nor would it be correct to say that 
these successive holders, if they had 
not had the bill, might have attained 
their purpose bv purchasing goods on 
their own credit with the dealers. 
i'.K. 


They may not all of them be persons 
of credit, or they may already have 
stretched their credit as far as it will 
go. And at all events, either money 
or goods are more readily obtained on 
the credit of two persons than of one. 
Nobody will pretend that it is as easy 
a thing for a merchant to borrow a 
thousand pounds on his own credit, as to 
get a bill discounted to the same amount, 
when the drawee is of known solvency. 

If we now suppose that A, instead of 
giving a bill, obtains a loan of bank 
notes from a banker C, and with them 
pays B for his goods, we shall find the 
difference to be still greater. B is now 
independent even of a discounter: A’s 
bill would have been taken in payment 
only by thosfc who were acquainted 
with his reputation for solvency', but a 
banker is a person who has credit with 
the public generally, and whose notes 
are taken in payment by every one, at 
least in his own neighbourhood: inso¬ 
much that, by a custom which has 
grown into law, payment in bank notes 
is a complete acquittance to the payer, 
whereas if he has paid by a bill, he 
still remains liable to the debt, if the 
person on whom the bill is drawn fails 
to pay it when due. B therefore can 
expend the whole of the bank notes 
without at all involving his own credit: 
and whatever power he had before of 
obtaining goods on book credit, remains 
to him unimpaired, in addition to the 
purchasing power ho derives from the 
possession of the notes. The same re¬ 
mark applies to every person in suc¬ 
cession, into whose hands the notes 
may come. It is only A, the first 
holder, (who used his credit to obtain 
the notes as a loan from the issuer,) 
who can possibly find the credit he 
possesses in other quarters abated by 
it; and even in his case that result is 
not probable; for though, in reason, 
and if all his circumstances were 
known, every' draft already made upon 
his credit ought to diminish by so much 
his power of obtaining more, yet in 
practice the reverse more frequently 
happens, and his having been trusted 
by one person is supposed to be evi¬ 
dence that he may' safely be trusted by 
others also. 


Y 





BOOK III. CHAPTER XII. § 5. 


322 

It appears, therefore, that hank 
notes are a more powerful instrument 
for raising prices than hills, and bills 
than book credit. It does not, indeed, 
follow that credit will be more used 
because it can be. When the state of 
trade holds out no particular tempta¬ 
tion to make large purchases on credit, 
dealers will use only a small portion of 
the credit-power, and it will depend only 
on convenience whether the portion 
which they use will be taken in one 
form or in another. It is not until the 
circumstances of the markets, and the 
state of the mercantile mind, render 
many persons desirous of stretching 
their credit to an unusual extent, that 
the distinctive properties of the dif¬ 
ferent forms of credit display them¬ 
selves. Credit already stretched to 
the utmost in the form of book debts, 
would be susceptible of a great addi¬ 
tional extension by means of bills, and 
of a still greater by means of bank 
notes. The first, because each dealer, 
in addition to his own credit, would be 
enabled to create a further purchasing 
power out of the credit which he had 
himself given to others: the second, 
because the banker’s credit with the 
public at large, coined into notes, as 
bullion is coined into pieces of money 
to make it portable and divisible, is so 
much purchasing power superadded, 
in the hands of every successive holder, 
to that which he may derive from his 
own credit. To state the matter other¬ 
wise ; one single exertion of the credit- 
power in the form of book credit, is 
only the foundation of a single pur¬ 
chase : but if a bill is drawn, that 
same portion of credit may serve for 
as many purchases as the number of 
times the bill changes hands: while 
every bank note issued, renders the 
credit of the banker a purchasing 
power to that amount in the hands of 
all the successive holders, without im¬ 
pairing any power they may possess of 
effecting purchases on their own credit. 
Credit, in slioi't, has exactly the same 
purchasing power with money; and as 
money tells upon prices not simply in 
proportion to its amount, but to its 
amount multiplied by the number of 
times it changes hands, so also does 


credit; and credit transferable from 
hand to hand is in that proportion 
more potent than credit which only 
performs one purchase. 

§ 5. All this purchasing power, how¬ 
ever, is operative upon prices, only 
according to the proportion of it which 
is used: and the effect, therefore, is 
only felt in a state of circumstances 
calculated to lead to an unusually ex¬ 
tended use of credit. In such a state 
of circumstances, that is, in speculative 
times, it cannot, I think, be denied, 
that prices are likely to rise higher if 
the speculative purchases are made 
with bank notes, than when they are 
made with bills, and when made by 
bills than when made by book credits. 
This, however, is of far less practical 
importance than might at first be 
imagined ; because, in point of fact, 
speculative purchases are not in the 
great majority of cases, made either 
with bank notes or with bills, but 
are made almost exclusively ou book 
credits. “Applications to the Bank for 
extended discount,” says the highest 
authority on such subjects,* (and the 
same thing must be true of applications 
to other banks) “ occur rarely if ever 
in the origin or progress of extensive 
speculations in commodities. These are 
entered into, for the most part if not 
entirely, in the first instance, on credit 
for the length of term usual in the 
several trades; thus entailing on the 
parties no immediate necessity for bor¬ 
rowing so much as may he wanted for 
the purpose beyond their own available 
capital. This applies particularly to 
speculative purchases of commodities 
on the spot, with a view to resale. But 
these generally form the smaller pro¬ 
portion of engagements on credit. By 
far the largest of those entered into on 
the prospect of a rise of prices, are 
such as have in view importations from 
abroad. The same remark, too, is ap¬ 
plicable to the export of commodities, 
when a large proportion is on the credit 
of the shippers or their consignees. As 
long as circumstances hold out the 
prospect of a favourable result, the 

* Tooke’s History of Prices, vol. ir. pp. 
125—6, 





INFLUENCE OF CREDIT ON PRICES. 


credit of the parties is generally sus¬ 
tained. If some of tliem wish to realize, 
there are others with capital and credit 
ready to replace them; and if the events 
fully justify the grounds on which the 
speculative transactions were entered 
into (thus admitting of sales for con¬ 
sumption in time to replace the capital 
embarked) there is no unusual demand 
for borrowed capital to sustain them. 
It is only when by the vicissitudes of 
political events, or of the seasons, or 
other adventitious circumstances, the 
forthcoming supplies are found to ex¬ 
ceed the computed rate of consumption, 
and a fall of prices ensues, that an 
increased demand for capital takes 
place; the market rate of interest 
then rises, and increased applications 
are made to the Bank of England for 
discount.” So that the multiplication 
of hank notes and other transferable 
paper does not, for the most part, ac¬ 
company and facilitate the speculation; 
hut comes into play chiefly when the 
tide is turning, and difficulties begin to 
be felt. 

Of the extraordinary height to 
which speculative transactions can be 
carried upon mere book credits, without 
the smallest addition to what is com¬ 
monly called the currency, very few 
persons are at all aware. “ The power 
of purchase,” says Mr. Tooke,* “by 
persons having capital and credit, is 
much beyond anything that those who 
•are unacquainted practically with spe¬ 
culative markets have any idea of. . . . 
A person having the reputation of 
capital enough for his regular business, 
and enjoying good credit in his trade, 
if he takes a sanguine view of the 
prospect of a rise of price of the article 
in which he deals, and is favoured by 
circumstances in the outset and pro¬ 
gress of his speculation, may effect pur¬ 
chases to an extent perfectly enormous, 
compared with his capital.” Mr. 
Tooke confirms this statement by some 
remarkable instances, exemplifying the 
immense purchasing power which may 
be exercised, and rise of price which 
may be produced, by credit not repre- 

* Inquiry into the Currency Principle, pp, 
79 and — 8, 


323 

sented by either bank notes or bills of 
exchange. 

“ Amongst the earlier speculators 
for an advance in the price of tea, in 
consequence of our dispute with China 
in 1839, were several retail grocers and 
tea-dealers. There was a general dis¬ 
position among the trade to get into 
stock : that is, to lay in at once a quan¬ 
tity which would meet the probable 
demand from their customers for seve¬ 
ral months to come. Some, however, 
among them, more sanguine and ad¬ 
venturous than the rest, availed them¬ 
selves of their credit with the importers 
and wholesale dealers, for purchasing 
quantities much beyond the estimated 
demand in their own business. As the 
purchases were made in the first instance 
ostensibly, and perhaps really, for the 
legitimate purposes and within the 
limits of their regular business, the 
parties were enabled to buy without 
the condition of any deposit; whereas 
speculators, known to be such, are 
required to pay 21. per chest, to cover 
any probable difference of price which 
might arise before the expiration of the 
prompt, which, for this article, is three 
months. Without, therefore, the outlay 
of a single farthing of actual capital or 
currency in any shape, they made pur¬ 
chases to a considerable extent; and 
with the profit realized on the resale of 
a part of these purchases, they were 
enabled to pay the deposit on further 
quantities when required, as was the 
case when the extent of the purchases 
attracted attention. In this way, the 
speculation went on at advancing 
prices (100 per cent and upwards) till 
nearly the expiration of the prompt, 
and if at that time circumstances had 
been such as to justify the appre¬ 
hension which at one time prevailed, 
that all future supplies would be cut 
off, the prices might have still further 
advanced, and at any rate not have 
retrograded. In this case, the specu¬ 
lators might have realized, if not all 
the profit they had anticipated, a very 
handsome sum, upon which they might 
have been enabled to extend their 
business greatly, or to retire from it 
altogether, with a reputation for great 
sagacity in thus making their fortune. 

Y 2 



BOOK III. CHAPTER XII. § 5. 


324 

But, instead of this favourable result, it 
so happened that two or three cargoes 
of tea which had been transhipped 
were admitted, contrary to expectation, 
to entry on their arrival here, and it 
was found that further indirect ship¬ 
ments were in progress. Thus the 
supply was increased beyond the cal¬ 
culation of the speculators: and at the 
same time, the consumption had been 
diminished by the high price. There 
was, consequently, a violent reaction 
on the market; the speculators were 
unable to sell without such a sacrifice 
as disabled them from fulfilling their 
engagements, and several of them con¬ 
sequently failed. Among these, one 
was mentioned, who having a capital 
not exceeding 1200?., which was locked 
up in his business, had contrived to 
buy 4000 chests, value above 80,000?., 
the loss upon which was about 10,000?. 

“ The other example which I have to 
give, is that of the operation on the 
corn market between 1838 and 1842. 
There was an instance of a person who, 
when he entered on his extensive spe¬ 
culations, was, as it appeared by the 
subsequent examination of his affairs, 
possessed of a capital not exceeding 
5000?., but being successful in the out¬ 
set, and favoured by circumstances in 
the progress of his operations, he con¬ 
trived to make purchases to such an 
extent, that when he stopped payment 
his engagements were found to amount 
to between 500,000?. and 600,000?. 
Other instances might be cited of 
parties without any capital at all, who, 
by dint of mere credit, were enabled, 
while the aspect of the market favoured 
their views, to make purchases to a 
very great extent. 

“And be it observed, that these 
speculations, involving enormous pur¬ 
chases on little or no capital, were 
carried on in 1839 and 1840, when the 
money market was in its most con¬ 
tracted state ; or when, according to 
modern phraseology, there was the 
greatest scarcity of money.” 

But though the great instrument of 
speculative purchases is book credits, it 
car.not be contested that in speculative 
periods an increase does take place in 
the quantity both of bills of exchange 


and of bank notes. This increase, in* 
deed, so far as bank notes are concerned, 
hardly ever takes place in the earliest 
stage of the speculations; advances 
from bankers (as Mr. Tooke observes) 
not being applied for in order to pur¬ 
chase, but in order to hold on without 
selling, when the usual term of credit 
has expired, and the high price which 
was calculated on has not arrived. But 
the tea speculators mentioned by Mr. 
Tooke could not have carried their 
speculations beyond the three months 
which are the usual term of credit in 
their trade, unless they had been able 
to obtain advances from bankers, which, 
if the expectation of a rise of price had 
still continued, they probably could 
have done. 

Since, then, credit in the form of 
bank notes is a more potent instrument 
for raising prices than book credits, an 
unrestrained power of resorting to this 
instrument may contribute to prolong 
and heighten the speculative rise of 
prices, and hence to aggravate the sub¬ 
sequent recoil. But in what degree ? 
and what importance ought we to 
ascribe to this possibility ? It may help 
us to form some judgment on this point, 
if we consider the proportion which the 
utmost increase of bank notes in a 
period of speculation, bears, I do not 
say to the whole mass of credit in the 
country, but to the bills of exchange 
alone. The average amount of bills in 
existence at any one time is supposed 
greatly to exceed a hundred millions 
sterling.* The bank note circulation 
of Great Britain and Ireland seldom 
exceeds forty millions, and the increase 
in speculative periods at most two or 
three. And even this, as we have seen, 
hardly ever comes into play until that 
advanced period of the speculation at 
which the tide shows signs of turning, 
and the dealers generally are rather 
thinking of the means of fulfilling their 
existing engagements, than meditating 
an extension of them : while the quan¬ 
tity of bills in existence is largely in¬ 
creased from the very commencement 
of the speculations. 

§ 6. It is well known that of late 

* Tlie most approved estimate is that of 



INFLUENCE OF CREDIT ON PRICES. 


years, an artificial limitation of the 
issue of bank notes has been regarded 
by many political economists, and by a 
great portion of the public, as an ex¬ 
pedient of supreme efficacy for prevent¬ 
ing, and when it cannot prevent, for 
moderating, the fever of speculation; 
and this opinion received the recog¬ 
nition and sanction of the legislature 
by the Currency Act of 1844. At the 
point, however, which our inquiries 
have reached, though we have con¬ 
ceded to bank notes a greater power 
over prices than is possessed by bills or 
book credits, we have not found reason 
to think that this superior efficacy has 
much share in producing the rise of 
prices which accompanies a period of 
speculation, nor consequently that any 
restraint applied to this one instru¬ 
ment, can be efficacious to the degree 
which is often supposed, in moderating 
either that rise, or the recoil which 
follows it. We shall be still less in¬ 
clined to think so, when we consider 
that there is a fourth form of credit 


Mr. Leatham, grounded on the official 
returns of hill stamps issued. The following 
are the results :— 


Year. 

Bills created in 
Great Britain 
and Ireland, 
founded on re¬ 
turns of Bill 
Stamps issued 
from the Stamp 
Office. 

Average amount 
in circulation 
at one time in 
each year. 

1832 

£356.153,409 

^-89,038,352 

1833 

383,659,585 

95,914,896 

1834 

379,155,052 

94,788,763 

IS 35 

405,403,051 

101,350,762 

1836 

485,943,473 

121,485,868 

1837 

455,084,445 

113,771,111 

1838 

465,504,041 

116,376,010 

1839 

523,493,842 

132,123,460 


“ Mr. Leatham,” says Mr. Tooke, “gives 
the process by which, upon the data fur¬ 
nished by the returns of stamps, he arrives 
at these results; and I am disposed to think 
that they are as near an approximation to 
the truth as the nature of the materials ad¬ 
mits of arriving at.”— Inquiry into the Cur¬ 
rency Principle , p. 26. Mr. Newmarch (Ap¬ 
pendix No. 39 to Report, of the Committee on 
the Bank Acts in 1857, and History of Prices, 
vol. vi. p. 587) shows grounds for the opinion 
that the total bill circulation in 1857 was 
not much less than 180 millions sterling, and 
that it sometimes rises to 200 millions. 


325 

transactions, by cheques on bankers, 
and transfers in a banker’s books, which 
is exactly parallel in every respect to 
bank notes, giving equal facilities to 
an extension of credit, and capable of 
acting on prices quite as powerfully. 
In the words of Mr. Fullarton,* “ there 
is not a single object at present at¬ 
tained through the agency of Bank of 
England notes, which might not be as 
effectually accomplished by each indi¬ 
vidual keeping an account with the 
bank, and transacting all his payments 
of five pounds and upwards by cheque.” 
A bank, instead of lending its notes to 
a merchant or dealer, might open an 
account with him, and credit the ac¬ 
count with the sum it had agreed to 
advance: on an understanding that he 
should not draw out that sum in any 
other mode than by drawing cheques 
against it in favour of those to whom 
he had occasion to make payments. 
These cheques might possibly even 
pass from hand to hand like bank 
notes; more commonly however the 
receiver would pay them into, the 
hands of his own banker, and when he 
wanted the money, would draw a fresh 
cheque against it: and hence an ob¬ 
jector may urge that as the original 
cheque would very soon be presented 
for payment, when it must be paid 
either in notes or in coin, notes or coin 
to an equal amount must be provided 
as the ultimate means of liquidation. 
It is not so, however. The person to 
whom the cheqtte is transferred, may 
perhaps deal with the same banker, 
and the cheque may return to the very 
bank on which it was drawn: this is 
very often the case in country districts; 
if so, no payment will be called for, but 
a simple transfer in the banker’s books 
will settle the transaction. If the 
cheque is paid into a different bank, it 
will not be presented for payment, 
but liquidated by set-off against , other 
cheques; and in a state of circum¬ 
stances favourable to a general exten¬ 
sion of banking credits, a banker who 
has granted more credit, and has there¬ 
fore more cheques drawn on him, will 
also have more cheques on other 
bankers paid to him, and will only have 
* On the Regulation of Currencies, p. 41. 














326 BOOK m. CHAPTER XII. § 7. 


to provide notes or cash for the pay¬ 
ment of balances : for -which purpose 
the ordinary reserve of prudent bankers, 
one-third of their liabilities, -will abun¬ 
dantly suffice. Xow. if he had granted 
the extension of credit by means of an 
issue of his own notes, he must equally 
have retained, in coin or Bank of 
England notes, the usual reserve: so 
that he can. as Mr. Fullarton says, give 
every facility of credit by what may be 
termed a cheque circulation, which he 
could give by a note circulation. 

This extension of credit by entries in 
a bankers books, has all that superior ' 
efficiency in acting on prices, which we 
ascribed to an extension by means of 
bank notes. As a bank note of 20/., 
paid to any one. gives him 2<j/. of pur¬ 
chasing-power based on credit, over 
and above whatever credit he had of 
his own, so does a cheque paid to him 
do the same : for. although he may 
make no purchase with the cheque 
itself, he deposits it with his banker, 
and can draw against it. As this act ! 
of drawing a cheque against another 
which has been exchanged and can¬ 
celled. can be repeated as often a< a 
purchase with a bank note, it effects 
the same increase of purchasing power. ! 
The original loan, or credit, given by 
the banker to his customer, is po¬ 
tentially multiplied as a means of pur- : 
chase, in the hands of the successive 
persons to whom portions of the credit 
are paid away, just as the purchasing j 
power of a hank note is multiplied by 
the number of persons ihrough whose 1 
hands it passes before it is returned to j 
the issner. 

These considerations abate very 
much from the importance of any 
effect which can lx- produced in allay¬ 
ing the vicissitudes of commerce, by 
so superficial a contrivance as the one 
so mneh relied on of late, the restric¬ 
tion of the issue of bank notes by an j 
artificial rale. An examination of all 1 
the consequences of that restriction, 
and an estimate of the reasons for and ‘ 
against it, must be deferred until we 
have treated of the foreign exchanges, 
and the international movements of 
bullion. At present we are only con¬ 
cerned with the general tbeorv of 
*-» • ■ 


prices, of which the different influence 
of different kinds of credit is an essen¬ 
tial part. 

§ 7. There has been a erreat amount 
of discussion and argument on t..e ques¬ 
tion whether several of these forms of 
credit, and in particular whether bank 
notes, ought to be considered ;■.« m uey. 
The question is so purely verbal as to 
be scarce!v worth raising, and one 
would have some difficulty in compre¬ 
hending why so much importance is 
attached to it, if there were not some 

authorities who. still adhering to the 

* 

doctrine of the infancy of society and 
of political economy, that the quantity 
of money, compared with that of com¬ 
modities. determines general prices, 
think it important to prove that bank 
notes and no other forms of credir are 
money, in order to support the infer¬ 
ence that bank notes and no other forms 
of credit influence prices. It is obvious, 
however, that prices do not depend on 
money, but on purchases. Money left 
with a banker, and not drawn against, 
or drawn against for other purposes 
than having commodities, has no effect 
on prices, any more than credit which 
is not used. Credit which is used to 
purchase commodities, affects prices in 
the same manner as money. Money 
and credit are thus exactly on a par, 
in their effect on prices : and whether 
we choose to clas^ bank notes with the 
one or the other, is in this respect en¬ 
tirely immaterial. 

Since, however, this question of 
nomenclature has been raised, it -eems 
desirable that it should be answered. 
The reason given for considering bank 
notes as money, is. that by law and 
usage they have the property, in com¬ 
mon with metallic money, of finally 
closing the transactions in which thev 
are employed: while no other mode 
of paying one debt by transferring 
another has that privilege. The fitat 
ren. ich here suggests itself is, 

that on this showing, the notes at 
least of private banks are not money: 
for a creditor cannot be forced to accept 
them in payment of a debt. They cer¬ 
tainly close the transaction if he does 
accept them ; but so, on the same sup- 



INFLUENCE OF CREDIT ON PRICES. 


position, -would a bale of cloth, or a 
pipe of wine; which are not for that 
reason regarded as money. It seems 
to be an essential part of 1 the idea of 
money, that it be legal tender. An in¬ 
convertible paper which is legal tender 
is universally admitted to be money; 
in the French language the phrase 
papier-monnaie actually means incon¬ 
vertibility, convertible notes being 
merely billets & porteur. It is only iu 
the case of Bank of England notes under 
the law of convertibility, that any diffi¬ 
culty arises; those notes not being a 
legal tender from the Bank itself, 
though a legal tender from all other 
persons. Bank of England notes un¬ 
doubtedly do close transactions, so far 
as respects the buyer. When he has 
once paid in Bank of England notes, 
he can in no case be required to pay 
over again. But I confess I cannot 
see how the transaction can be deemed 
complete as regai'ds the seller, when 
he will only be found to have received 
the price of his commodity provided 
the bank keeps its promise to pay. An 
instrument which would be deprived 
of all value by the insolvency of a cor¬ 
poration, cannot be money in any 
sense in which money is opposed to 
credit. It either is not money, or it 
is money and credit too. It may be 
most suitably described as coined cre¬ 
dit. The other forms of credit may 
be distinguished from it as credit in 
ingots. 

§ 8. Some high authorities have 
claimed for bank notes, as compared 
with other modes of credit, a greater 
distinction in respect to influence on 
price than we have seen reason to allow; 
a difference, not in degree, but in kind. 
They ground this distinction on the 
fact, that all bills and cheques, as well 
as all book-debts, are from the first in¬ 
tended to be, and actually are, ulti¬ 
mately liquidated either in coin or in 
notes. The bank notes in circulation, 
jointly with the coin, are therefore, 
according to these authorities, the 
basis on which all the other expedients 
of credit rest; and in proportion to 
the basis will be the superstructure; 
insomuch that the quantity of bank 


327 

notes determines that of all the other 
forms of credit. If bank notes are 
multiplied, there will, they seem to 
think, be more bills, more payments 
by cheque, and, I presume, more 
book credits; and, by regulating and 
limiting the issue of bank notes, they 
think that all other forms of credit are, 
by an indirect consequence, brought 
under a similar limitation. I believe 
I have stated the opinion of these 
authorities correctly, though I have 
nowhere seen the grounds of it set 
forth with such distinctness as to make 
me feel quite certain that I understand 
them. It may be true, that according 
as there are more or fewer bank notes, 
there is also, in general (though not 
invariably), more or less of other de¬ 
scriptions of credit; for the same state 
of affairs which leads to an increase of 
credit in one shape, leads to an increase 
of it in other shapes. But I see no 
reason for believing that the one is the 
cause of the other. If indeed we begin 
by assuming, as I suspect is tacitly 
done, that prices are regulated by coin 
and bank notes, the proposition main¬ 
tained will certainly follow": for, accord¬ 
ing as prices are higher or lower, the 
same purchases will give rise to bills, 
cheques, and book credits of a larger 
or a smaller amount. But the premise 
in this reasoning is the very proposi¬ 
tion to be proved. Setting this assump¬ 
tion aside, I know not liow r the conclu¬ 
sion can be substantiated. The credit 
given to any one by those with whom 
he deals, does not depend on the quan¬ 
tity of bank notes or coin in circulation 
at the time, but on their opinion of his 
solvency : if any consideration of a more 
general character enters into their cal¬ 
culation, it is only in a time of pressure 
on the loan market, when they are not 
certain of being themselves able to ob¬ 
tain the credit on which they have been 
accustomed to rely; and even then, 
what they look to is the general state 
of the loan market, and not (precon¬ 
ceived theory apart) the amount of 
bank notes. So far, as to the willing- 
ness to give credit. And the willing¬ 
ness of a dealer to use his credit, de¬ 
pends on his expectations of gain, that 
is, on his opinion of the probable future 



328 LOOK III. CHAPTER XIII. § I. 


price of his commodity; an opinion 
grounded either on the rise or fall 
already going on, or on his prospective 
judgment respecting the supply and Ihe 
rate of consumption. When a dealer 
extends his purchases beyond his im¬ 
mediate means of payment, engaging 
to pay at a specified time, he does so 
in the expectation either that the trans¬ 
action will have terminated favourably 
before that time arrives, or that he 
shall then be in possession of sufficient 
funds from the proceeds of his other 
transactions. The fulfilment of these 
expectations depends upon prices, but 
not specially upon the amount of bank 
notes. He may, doubtless, also ask him¬ 
self. in case he should be disappointed 
in these expectations, to what quarter 
he can look for a temporary advance, 
to enable him, at the worst, to keep 
his engagements. But in the first 
place, this prospective reflection on the 
somewhat more or less of difficulty 
which he may have in tiding over his 
embarrassments, seems too slender an 


inducement to be much of a restraint 
in a period supposed to be one of rash ad¬ 
venture, and upon persons so confident 
of success as to involve themselves be- 
yond their certain means of extrication. 
And further. I apprehend that their con¬ 
fidence of being helped out in the event 
of ill-fortune, will mainly depend on 
their opinion of their own individual 
credit, with, perhaps, some considera¬ 
tion, not of the quantity of the currency, 
but of the general state of the loan 
market. They are aware that, in case 
of a commercial crisis, they shall have 
difficulty in obtaining advances. But 
if they thought it likely that a com¬ 
mercial crisis would occur before they 
had realized, they would not speculate. 
If no great contraction of general cre¬ 
dit occurs, they will feel no doubt of 
obtaining any advances which they 
absolutely require, provided the state 
of their own affairs at the time affords 
in the estimation of lenders a sufficient ’ 
prospect that those advances will be 
repaid. 


CHAPTER XIII. 

OF AN INCONVERTIBLE PAPER CURRENCY. 


§ 1. After experience had shown ! 
that pieces of paper, of no intrinsic ! 
value, by merely bearing upon them ; 
the written profession of being equiva¬ 
lent to a certain number of francs, dol¬ 
lars, or pounds, could be made to circu¬ 
late as such, and to produce all the 
benefit to the issuers which could have 
been produced by the coins which they 
purported to represent; governments 
began to think that it would be a happy 
device if they could appropriate to them¬ 
selves this benefit, free from the con¬ 
dition to which individuals issuing such 
paper substitutes for money were sub¬ 
ject, of giving, when required, for the 
sign, the thing signified. They deter¬ 
mined to try whether they could not 
emancipate themselves from this un¬ 
pleasant obligation, and make a piece 
of paper issued by them pass for a 
pound, by merely calling it a pound, 


! and consenting to receive it in payment 
! of the taxes. And such is the influence 
i of almost all established governments, 
that they have generally succeeded in 
attaining this object: I believe 1 might 
say they have always succeeded for a 
time, and the power has only been lost 
to them after they had compromised it 
by the most flagrant abuse. 

In the case supposed, the functions 
of money are performed by a thing 
which derives its power of performing 
them solely from convention ; but con¬ 
vention is quite sufficient to confer the 
power ; since nothing more is needful 
to make a person accept anything as 
money, and even at any arbitrary value, 
than the persuasion that it will be 
taken from him on the same terms by 
others. The only question is, what de¬ 
termines the value of such a currency ; 
since it cannot be, as in the case of gold 







INCONVERTIBLE PAPER CURRENCY. 


and silver (or paper exchangeable for 
them at pleasure), the cost of produc¬ 
tion. 

We have seen, however, that even in 
the case of a metallic currency, the im¬ 
mediate agency in determining its value 
is its quantity. If the quantity, in¬ 
stead of depending on the ordinary mer¬ 
cantile motives of profit and loss, could 
be arbitrarily fixed by authority, the 
value would depend on the fiat of that 
authority, not on cost of production. 
The quantity of a paper currency not 
convertible into the metals at the option 
of the holder, can be arbitrarily fixed; 
especially if the issuer is the sovereign 
power of the state. The value, there¬ 
fore, of such a currency, is entirely 
arbitrary. 

Suppose that, in a country of which 
the currency is wholly metallic, a paper 
currency is suddenly issued, to the 
amount of half the metallic circulation: 
not by a banking establishment, or in 
the form of loans, but by the govern¬ 
ment, in payment of salaries and pur¬ 
chase of commodities. The currency 
being suddenly increased by one-half, 
all prices will rise, and among the 
rest, the prices of all things made of 
gold and silver. An ounce of manu¬ 
factured gold will become more valu¬ 
able than an ounce of gold coin, by 
more than that customary difference 
which compensates for the value of the 
workmanship ; and it will be profitable 
to melt the coin for the purpose of 
being manufactured, until as much has 
been taken from the currency by the 
subtraction of gold, as had been added 
to it by the issue of paper. Then prices 
will relapse to what they were at first, 
sind there will be nothing changed ex¬ 
cept that a paper currency has been 
substituted for half of the metallic cur¬ 
rency which existed before. Suppose, 
now, a second emission of paper ; the 
same series of effects will be renewed; 
and so on, until the whole of the me¬ 
tallic money has disappeared: that is, 
if paper be issued of as low a denomi¬ 
nation as the lowest coin ; if not, as 
much will remain, as convenience re¬ 
quires for the smaller payments. The 
addition made to the quantity of gold 
and silver disposable for ornamental 


329 

purposes, will somewhat reduce, for a 
time, the value of the article ; and as 
long as this is the case, even though 
paper has been issued to the original 
amount of the metallic circulation, as 
much coin will remain in circulation 
along with it, as will keep the value of 
the currency down to the reduced value 
of the metallic material; but the value 
having fallen below the cost of produc¬ 
tion, a stoppage or diminution of the 
supply from the mines will enable the 
surplus to be carried off by the ordinary 
agents of destruction, after which, the 
metals and the currency will recover 
their natural value. We are here sup¬ 
posing, as we have supposed through¬ 
out, that the country has mines of its 
own, and no commercial intercourse 
with other countries: for, in a country 
having foreign trade, the coin which is 
rendered superfluous by an issue of 
paper is carried oft' by a much prompter 
method. 

Up to this point, the effects of a 
paper currency are substantially the 
same, whether it is convertible into 
specie or not. It is when the metals 
have been completely superseded and 
driven from circulation, that the diffe¬ 
rence between convertible and incon¬ 
vertible paper begins to be operative. 
When the gold or silver has all gone 
from circulation, and an equal quantity 
of paper has taken its place, suppose 
that a still further issue is superadded. 
The same series of phenomena recom¬ 
mences : prices rise, among the rest 
the prices of gold and silver articles, 
and it becomes an object as before to 
procure coin in order to convert it into 
bullion. There is no longer any coin 
in circulation; but if the paper cur¬ 
rency is convertible, coin may still be 
obtained from the issuers, in exchange 
for notes. All additional notes, there¬ 
fore, which are attempted to be forced 
into circulation after the metals have 
been completely superseded, will return 
upon the issuers in exchange for coin ; 
and they will not be able to maintain 
in circulation such a quantity of con¬ 
vertible paper, as to sink its value below 
the metal which it represents. It is 
not so, however, with an inconvertible 
currency. To the increase of tiut 




BOOK III. CHAPTER XIII. § 2. 


330 

permitted by law) there is no check. 
The issuers may add to it indefinitely, 
lowering its value and raising prices in 
proportion ; they may, in other words, 
depreciate the currency without limit. 

Such a power, in whomsoever vested, 
is an intolerable evil. All variations 
in the value of the circulating medium 
are mischievous : they disturb existing 
contracts and expectations, and the 
liability to such changes renders every 
pecuniary engagement of long date 
entirely precarious. The person who 
buys for himself, or gives to another, 
an annuity of 100Z., does not know 
whether it will be equivalent to 200?. 
or to 50?. a few years hence. Great 
as "this evil would be if it depended 
only on accident, it is still greater 
when placed at the arbitraiy disposal 
of an individual or a body of indi¬ 
viduals; who may have any kind or 
degree of interest to be served by an 
artificial fluctuation in fortunes; and 
who have at any rate a strong interest 
in issuing as much as possible, each 
issue being in itself a source of profit. 
Not to add, that the issuers may have, 
and in the case of a government paper 
always have, a direct interest in lower¬ 
ing the value of the currency, because 
it is the medium in which their own 
debts are computed. 

§ 2. In order that the value of the 
currency may be secure from being 
altered by design, and may be as little 
as possible liable to fluctuation from 
accident, the articles least liable of all 
known commodities to vary in their 
value, the precious metals, have been 
made in all civilized countries the 
standard of value for the circulating 
medium ; and no paper currency ought 
to exist of which the value cannot be 
made to conform to theirs. Nor has 
this fundamental maxim ever been en¬ 
tirely lost sight of even by the govern¬ 
ments which have most abused the 
power of creating inconvertible paper. 
If they have not (as they generally 
have) professed an intention of paying 
m specie at some indefinite future time, 
they have at least, by giving to their 
paper issues the names of their coins, 
made a virtual, though generally 7 a 


false, profession of intending to kesp 
them at a value corresponding to that 
of the coins. This is not impracticable, 
even with an inconvertible paper. 
There is not indeed the self-acting 
check which convertibility brings with 
it. But there is a clear and unequi¬ 
vocal indication by which to judga 
whether the currency is depreciated, 
and to what extent. That indication 
is, the price of the precious metals. 
When holders of paper cannot demand 
coin to be converted into bullion, and 
when there is none left in circulation, 
bullion rises and falls in price like other 
things; and if it is above the Mint 
price, if an ounce of gold, which would 
be coined into the equivalent of 
3?. 175. 10Ar?., is sold for 4?. or 51. in 
paper, the value of the currency has 
sunk just that much below what the 
value of a metallic currency would be. 
If, therefore, the issue of inconvertible 
paper were subjected to strict rules, 
one rule being that whenever bullion 
rose above the Mint price, [the issues 
should be contracted until the market 
price of bullion and the Mint price were 
again in accordance, such a currency 
would not be subject to any of the evils 
usually deemed inherent in an incon¬ 
vertible paper. 

But also such a system of currency 
would have no advantages sufficient to 
recommend it to adoption. An incon¬ 
vertible currency, regulated by the 
price of bullion, would conform exactly', 
in all its variations, to a convertible 
one ; and the only advantage gained, 
would be that of exemption from the 
necessity of keeping any reserve of the 
precious metals ; which is not a very 
important consideration, especially as 
a government, so long as its good faith 
is not suspected, needs not keep so 
large a reserve as private issuers, being 
not so liable to great and sudden de¬ 
mands, since there never can be any 
real doubt of its solvency. Against 
tlii s small advantage is to be set, in the 
first place, the possibility of fraudulent 
tampering with the price of bullion for 
the sake of acting on the currency ; in 
the manner of the fictitious sales of 
corn, to influence the averages, so 
much and so justly complained of while 




INCONVERTIBLE PAPER CURRENCY. 331 


the corn laws were in force. But a 
still stronger consideration is the im¬ 
portance of adhering to a simple prin¬ 
ciple, intelligible to-the most untaught 
capacity. Everybody can understand 
convertibility; every one sees that 
what can be at any moment exchanged 
for five pounds, is worth five pounds. 
Regulation by the price of bullion is 
a more complex idea, and does not re¬ 
commend itself through the same fa¬ 
miliar associations. There would be 
nothing like the same confidence, by 
the public generally, in an inconver¬ 
tible currency so regulated, as in a con¬ 
vertible one : and the most instructed 
person might reasonably doubt whether 
such a rule would be as likely to be in¬ 
flexibly adhered to. The grounds of 
the rule not being so well understood 
by the public, opinion w r ould probably 
not enforce it with as much rigidity, 
and, in any circumstances of difficulty, 
would be likely to turn against it, 
■while to the government itself a sus¬ 
pension of convertibility would appear 
a much stronger and more extreme 
measure, than a relaxation of what 
might possibly be considered a some¬ 
what artificial rule. There is therefore 
a great preponderance-of reasons in 
favour of a convertible, in preference to 
even the best regulated inconvertible 
currency. The temptation to over¬ 
issue, in certain financial emergencies, 
is so strong, that nothing is admissible 
which can tend, in however slight a 
degree, to weaken the barriers that 
restrain it. 

§ 3. Although no doctrine in poli¬ 
tical economy rests on more obvious 
grounds than the mischief of a paper 
currency not maintained at the same 
value with a metallic, either by con¬ 
vertibility, or by some principle of limi¬ 
tation equivalent to it; and although, 
accordingly, this doctrine has, though 
not till after the discussions of many 
years, been tolerably effectually 
drummed into the public mind; yet 
dissentients arc still numerous, and 
projectors every now and then start 
up, with plans for curing all the econo¬ 
mical evils of society by means of an 
unlimited issue of inconvertible paper. 


There is, in truth, a great charm in the 
idea. To be able to pay off the na¬ 
tional debt, defray the expenses of go¬ 
vernment without taxation, and in fine, 
to make the fortunes of the wdiole com¬ 
munity, is a brilliant prospect, when 
once a man is capable of believing that 
printing a few characters on bits of 
paper will do it. The philosopher’s 
stone could not be expected to do 
more. 

As these projects, however often 
slain, always resuscitate, it is not su¬ 
perfluous to examine one or ttvo of the 
fallacies by which the schemers impose 
upon themselves. One of the com¬ 
monest is, that a paper currency can¬ 
not be issued in excess so long as every 
note issued represents property, or has 
a foundation of actual property to 
rest on. These phrases, of represent¬ 
ing and resting, seldom convey any 
distinct or w T ell-defined idea: when 
they do, their meaning is no more than 
this—that the issuers of the paper 
must have property, either of their 
own or entrusted to them, to the value 
of all the notes they issue; though 
for what purpose does not very clearly 
appear ; for if the property cannot be 
claimed in exchange for the notes, it is 
difficult to divine in what manner its 
mere existence can serve to uphold 
their value. I presume, however, it is 
intended as a guarantee that the 
holders would be finally reimbursed, in 
case any untoward event should cause 
the whole concern to be wound up. On 
this theory there have been many 
schemes for “ coining the whole land of 
the country into money” and the like. 

In so far as this notion has any con¬ 
nexion at all with reason, it seems to 
originate in confounding two entirely 
distinct evils, to which a paper cur¬ 
rency is liable. One is, the insolvency 
of the issuers; which, if the paper is 
grounded on their credit—if it makes 
any promise of payment in cash, either 
on demand or at any future time—of 
course deprives the paper of any value 
which it derives from the promise. To 
this evil paper credit is equally liable, 
however moderately used ; and against 
it, a proviso that all issues should bo 
“ founded on property,” as for instance 



BOOK III. CHAPTER XIII. § 4. 


332 

that notes should only he issued on the 
security of some valuable thing ex¬ 
pressly pledged for their redemption, 
would really be efficacious as a pre¬ 
caution. But the theory takes no ac¬ 
count of another evil, which is incident 
to the notes of the most solvent firm, 
company, or government: that of being 
depreciated in value from being issued 
in excessive quantity. The assignats, 
during the French Revolution, were an 
example of a currency grounded on 
tin e principles. The assignats “ re¬ 
in ented’’ an immense amount of 
ligloy valuable property, namely the 
lands of the crown, the church, the 
monasteries, and the emigrants; 
amounting possibly to half the terri¬ 
tory of France. They were, in fact, 
orders or assignments on this mass of 
land. The revolutionary government 
had the idea of “coining” these lands 
into money; but, to do them justice, 
they did not originally contemplate the 
immense multiplication of issues to 
which they were eventually driven by 
the failure of all other financial re¬ 
sources. They imagined that the as¬ 
signats would come rapidly back to the 
issuers in exchange for land, and that 
they should be able to reissue them 
continually until the lands were all 
disposed of, without having at any 
time more than a very moderate quan¬ 
tity in circulation. Their hope was 
frustrated: the land did not sell so 
quickly as they expected ; buyers were 
not inclined to invest their money in 
possessions which were likely to be re¬ 
sumed without compensation if the 
Revolution succumbed: the bits of 
paper which represented land, becom¬ 
ing prodigiously multiplied, could no 
more keep up their value than the 
land itself would have done if it had 
all been brought to market at once: 
and the result was that it at last re¬ 
quired an assignat of six hundred 
francs to pay for a pound of butter. 

The example of the assignats has 
been said not to be conclusive, because 
an assignat only represented land in 
general, but not a definite quantity of 
jand. To have.prevented their depre¬ 
ciation, the proper course, it is affirmed, 
would have been to have made a valua¬ 


tion of all the confiscated property at 
its metallic value, and to have issued 
assignats up to, but not beyond, that 
limit; giving to the holders a right to 
demand any piece of land, at its re¬ 
gistered valuation, in exchange for 
assignats to the same amount. There 
can be no question about the superiority 
of this plan over the one actually 
adopted. Had this course been fol¬ 
lowed, the assignats could never have 
been depreciated to the inordinate de¬ 
gree they were; for—as they would have 
retained all their purchasing power in 
relation to land, however much they 
might have fallen in respect to other 
things—before they had lost very much 
of their market value, they would pro¬ 
bably have been brought in to be ex¬ 
changed for land. It must be remem¬ 
bered, however, that their not being 
depreciated would presuppose that no 
greater number of them continued in 
circulation than would have circulated 
if they had been convertible into cash. 
However convenient, therefore, in a 
time of revolution, this currency con¬ 
vertible into land on demand might 
have been, as a contrivance for selling 
rapidly a great quantity of land with 
the least possible sacrifice; it is diffi¬ 
cult to see what advantage it would 
have, as the permanent system of a 
country, over a currency convertible 
into coin: while it is not at all difficult 
to see what would be its disadvantages ; 
since land is far more variable in value 
than gold and silver; and besides, land, 
to most persons, being rather an in¬ 
cumbrance than a desirable possession, 
except to be converted into money, 
people would submit to a much greater 
depreciation before demanding land, 
than they will before demanding gold 
or silver.* 

§ 4. Another of the fallacies from 
which the advocates of an inconvertible 

* Among the schemes of currency to which, 
strange to say, intelligent writers have been 
found to give their sanction, one is as fol¬ 
lows: that the state should receive in pledge 
or mortgage, any kind or amount of property, 
such as land, stock, &c., and should advance 
to the owners inconvertible paper money to 
the estimated value. Such a currency would 
not even have the recommendations of the 



INCONVERTIBLE ] 

currency derive support, is the notion 
that an increase of the currency 
quickens industry. This idea was set 
afloat by Hume, in his Essay on 
Money, and lias had many devoted ad¬ 
herents since; witness the Birmingham 
currency school, of whom Mr. Attwood 
was at one time the most conspicuous 
representative. Mr. Attwood main¬ 
tained that a rise of prices produced by 
an increase of paper currency, stimu¬ 
lates every producer to his utmost ex¬ 
ertions, and brings all the capital and 
labour of the country into complete 
employment: and that this has inva¬ 
riably happened in all periods of rising 
prices, when the rise was on a suffi¬ 
ciently great scale. I presume, how¬ 
ever, that the inducement which, ac¬ 
cording to Mr. Attwood, excited this 
unusual ardour in all persons engaged 
in production, must have been the ex¬ 
pectation of getting more of commo¬ 
dities generally, more real wealth, in 
exchange for the produce of their 
labour, and not merely more pieces of 
paper. This expectation, however, 
must have been, by the very terms of 
the supposition, disappointed, since, all 
prices being supposed to rise equally, 
no one was really better paid for his 
goods than before. Those who agree 
with Mr. Attwood could only succeed 
in winning people on to these unwonted 
exertions, by a prolongation of what 
would in fact be a delusion; contriving 
matters so, that by a progressive rise 
of money prices, every producer shall 
always seem to be in the very act of 
obtaining an increased remuneration 
which he never, in reality, does obtain. 
It is unnecessary to advert to any 
other of the objections to this plan, 
than that of its total impracticability. 
It calculates on finding the whole world 
persisting for ever in the belief that 
more pieces of paper are more riches, 
and never discovering that, with all 
their paper, they cannot buy more of 

imaginary assignats supposed in the text; 
since those into whose hands the notes were 
paid by the persons who received them, could 
not return them to the Government, and de¬ 
mand in exchange land or stock which was 
only pledged, not alienated. There would 
be no reflux of such assignats as these, and 
their depreciation would be indefinite.- 


APER CURRENCY. 333 

anything than they could before. No 
such mistake was made during any of 
the periods of high prices, on the ex¬ 
perience of which this school lays so 
much stress. At the periods which 
Mr. Attwood mistook for times of 
prosperity, and which were simply (as 
all periods of high prices, under a 
convertible currency, must be) times 
of speculation, the speculators did not 
think they were growing rich because 
the high prices would last, but because 
they would not last, and because who¬ 
ever contrived to realize while they did 
last, -would find himself, after the re¬ 
coil, in possession of a greater number 
of pounds sterling, without their hav¬ 
ing become of less value. If, at the 
close of the speculation, an issue of 
paper had been made, sufficient to keep 
prices up to the point which they at¬ 
tained when at the highest, no one 
would have been more disappointed 
than the speculators; since the gain 
which they thought to have reaped by 
realizing in time (at the expense of 
their competitors, who bought when 
they sold, and had to sell after the revul¬ 
sion) would have faded away in their 
hands, and instead of it they would 
have got nothing except a few more 
paper tickets to count by. 

Hume’s version of the doctrine dif¬ 
fered in a slight degree from Mr. 
Attwood’s. He thought that all com¬ 
modities would not rise in price simul¬ 
taneously, and that some persons 
therefore would obtain a real gain, by 
getting more money for what they had 
to sell, while the things which they 
wished to buy might not yet have 
risen. And those who would reap this 
gain would always be (he seems to 
think) the first comers. It seems 
obvious, however, that for every person 
who thus gains more than usual, there 
is necessarily some other person who 
gains less. The loser, if things took 
place as Hume supposes, would be the 
seller of the commodities which are 
slowest to rise; who, by the supposi¬ 
tion, parts with his goods at the old 
rices, to purchasers who have already 
enefited by the new. This seller has 
obtained for his commodity only the 
accustomed quantity of money, while 



334 BOOK III. CHAPTER XIII. § 6. 


there are already some tilings of which 
that money will no longer purchase as 
much as before. If, therefore, he 
knows what is going on, he will raise 
his price, and then the buyer will not 
have the gain, which is supposed to 
stimulate his industry. But if* on the 
contrary, the seller does not know the 
state of the case, and only discovers it 
when he finds, in laying his money out, 
that it does not go so far, he then ob¬ 
tains less than the ordinary remunera¬ 
tion for his labour and capital; and if 
the other dealer’s industry is encou¬ 
raged, it should seem that his must, 
from the opposite cause, be inpaired. 

§ 5. There is no way in which a 
general and permanent rise of prices, 
or in other words, depreciation of money, 
can benefit anybody, except at the ex¬ 
pense of somebody else. The substitu¬ 
tion of paper for metallic currency is 
a national gain: any further increase 
of paper beyond this is but a form of 
robbery. 

An issue of notes is a manifest gain 
to the issuers, who, until the notes are 
returned for payment, obtain the use of 
them as if they were a real capital : 
nnd so long as the notes are no perma¬ 
nent addition to the currency, but 
merely supersede gold or silver to the 
same amount, the gain of the issuer is 
a loss to no one : it is obtained by 
saving to the community the expense 
of the more costly material. But if 
there is no gold or silver to be super¬ 
seded—if the notes are added to the 
currency, instead of being substituted 
for the metallic part of it—all holders 
of currency lose, by the depreciation of 
its value, the exact equivalent of what 
the issuer gains. A tax is virtually 
levied on them for his benefit. It will 
be objected by some, that gains are 
also made by the producers and dealers 
who, by means of the increased issue, 
are accommodated with loans. Theirs, 
however, is not an additional gain, but 
a portion of that which is reaped by the 
issuer at the expense of all possessors 
of money. The profits arising from the 
contribution levied upon the public, he 
does not keep to himself, but divides 
with his customers. 


But besides the benefit reaped by 
the issuers, or by others through them 
at the expense of the public generally, 
there is another unjust gain obtained 
by a larger class, namely by those who 
are under fixed pecuniary obligations. 
All such persons are freed, by a depre¬ 
ciation of the currency, from a portion 
of the burthen of their debts or other 
engagements: in other words, part of 
the property of their creditors is gra¬ 
tuitously transferred to them. On a 
superficial view it may be imagined 
that this is an advantage to industry ; 
since the productive classes are great 
borrowers, and generally owe larger 
debts to the unproductive (if we include 
among the latter all persons not actually 
in business) than the unproductive 
classes owe to them ; especially if the 
national debt be included. It is only 
thus that a general rise of prices can 
be a source of benefit to producers and 
dealers; by diminishing the pressure 
of their fixed burthens. A nd this might 
be accounted an advantage, if integrity 
and good faith were of no importance 
to the world, and to industry and com¬ 
merce in particular. Mot many, how¬ 
ever, have been found to say that the 
currency ought to be depreciated on the 
simple ground of its being desirable to 
rob the national creditor and private cre¬ 
ditors of a part of what is in their bond. 
The schemes which have tended that 
way have almost always had some ap¬ 
pearance of special and circumstantial 
justification, such as the necessity of 
compensating for a prior injustice com¬ 
mitted in the contrary direction. 

§ 6. Thus in England, for many 
years subsequent to 1819, it was perti¬ 
naciously contended, that a large portion 
of the national debt, and a multitude 
of private debts still in existence, were 
contracted between 1797 and 1819, 
when the Bank of England was ex¬ 
empted from giving cash for its notes : 
and that it is grossly unjust to bor¬ 
rowers, (that is, in the case of the na¬ 
tional debt, to all tax-payers) that they 
should be paying interest on the same 
nominal sums in a currency of full 
value, which were borrowed in a depre¬ 
ciated one. The depreciation, accord’ 





INCONVERTIBLE PAPER CURRENCY. 


ing to the views and objects of the par¬ 
ticular writer, was represented to have 
averaged thirty, fifty, or even more than 
fifty per cent: and the conclusion was, 
that either we ought to return to this 
depreciated currency, or to strike off 
from the national debt, and from mort¬ 
gages or other private debts of old stand¬ 
ing, a percentage corresponding to the 
estimated amount of the depreciation. 

To this doctrine, the following was 
the answer usually made. Granting 
that, by returning to cash payments 
without lowering the standard, an in¬ 
justice was done to debtors, in holding 
them liable for the same amount of a 
currency enhanced in value, which they 
had borrowed while it was depreciated; 
it is now too late to make reparation 
for this injury. The debtors and cre¬ 
ditors of to-day are not the debtors and 
creditors of 1819: the lapse of years 
has entirely altered the pecuniary rela¬ 
tions of the community ; and it being 
impossible now to ascertain the par¬ 
ticular persons who were either bene¬ 
fited or injured, to attempt to retrace 
our steps would be not redressing a 
wrong, but superadding a second act 
of wide-spread injustice to the one al¬ 
ready committed. This argument is 
certainly conclusive on the practical 
question; but it places the honest con¬ 
clusion on too narrow and too low a 
ground. It concedes that the measure 
of 1819, called Peel’s Bill, by which 
cash payments were resumed at the 
original standard of 31. 17 s. 10J^., was 
really the injustice it was said to be. 
This is an admission wholly opposed 
to the truth. Parliament had no alter¬ 
native ; it was absolutely bound to ad¬ 
here to the acknowledged standard; as 
may be shown on three distinct grounds, 
two of fact, and one of principle. 

The reasons of fact are these. In 
the first place, it is not true that the 
debts, private or public, incurred during 
the Bank restriction, were contracted 
in a currency of lower value than that 
in which the interest is now paid. It 
is indeed true that the suspension of 
the obligation to pay in specie, did put 
it in the power of the Bank to depre¬ 
ciate the currency. It is true also that 
the Bank really exercised that power, 


335 

though to a far less extent than is often 
pretended; since the difference between 
the market price of gold and the Mint 
valuation, during the greater part of 
the interval, was very trifling, and when 
it was greatest, during the last five 
years of the war, did not much exceed 
thirty per cent. To the extent of that 
difference, the currency was depre¬ 
ciated, that is, its value was below 
that of the standard to which it pro¬ 
fessed to adhere. But the state of 
Europe at that time was such—there 
was so unusual an absorption of the 
precious metals, by hoarding, and in 
the military chests of the vast armies 
which then desolated the Continent, 
that the value of the standard itself 
was very considerably raised: and the 
best authorities, among whom it is suf¬ 
ficient to name Mr. Tooke, have, after 
an elaborate investigation, satisfied 
themselves that the difference between 
paper and bullion was not greater than 
the enhancement in value of gold itself, 
and that the paper, though depreciated 
relatively to the then value of gold, did 
not sink below the ordinary value, at 
other times, either of gold or of a con¬ 
vertible paper. If this be true (and 
the evidences of the fact are conclu¬ 
sively stated in Mr. Tooke’s history 
of Prices) the foundation of the whole 
case against the fundholder and other 
creditors on the ground of depreciation 
is subverted. 

But, secondly, even if the currency 
had really been lowered in value at 
each period of the Bank restriction, in 
the same degree in which it was de¬ 
preciated in relation to its standard, 
we must remember that a part only of 
the national debt, or of other perma¬ 
nent engagements, was incurred during 
the Bank restriction. A large part 
had been contracted before 1797; a 
still larger during the early years of 
the restriction, when the difference be¬ 
tween paper and gold was yet small. 
To the holders of the former part, an 
injury was done, by paying the interest 
for twenty-two years in a depreciated 
currency: those of the second, suffered 
an injury during the years in which the 
interest was paid in a currency more 
depreciated than that in which the 



BOOK III. CHAPTER XIV. § 1. 


336 

loans were contracted. To have re¬ 
sumed cash payments at a lower 
standard would have been to perpe¬ 
tuate the injury to these two classes 
of creditors, in order to avoid giving an 
undue benefit to a third class, who had 
lent their money during the few years 
of greatest depreciation. As it is, there 
was an underpayment to one set of per¬ 
sons, and an overpayment to another. 
The late Mr. Musnet took the trouble 
to make an arithmetical comparison 
between the two amounts. He ascer¬ 
tained by calculation, that if an ac¬ 
count had been made out in 1819, of 
what the fundholders had gained and 
lost by the variation of the paper cur¬ 
rency from its standard, they would 
have been found as a body to have been 
losers; so that if any compensation 
■was due on the ground of depreciation, 
it would not be from the fundholders 
collectively, but to them. 

Thus it is with the facts of the case. 
But these reasons of fact are not the 
strongest. There is a reason ot prin¬ 
ciple, still more powerful. Suppose 
that, not a part of the debt merely, but 
the whole, had been contracted in a 
depreciated currency, depi’eciated not 
only in comparison with its standard, 
but with its own value before and 
after; and that we were now paying 
the interest of this debt in a currency 
of fifty or even a hundred per cent 
more valuable than that in which it 
was contracted. What difference 
would this make in the obligation of 
paying it, if the condition that it should 
be so paid was part of the original com¬ 
pact ? Now this is not only truth, but 
less than the truth. The compact 
stipulated better terms for the fund- 
holder than he has received. During I 
the whole continuance of the Bank re- , 


striction, there was a parliamentary 
pledge, by which the legislature was 
as much bound as any legislature is 
capable of binding itself, that cash 
payments should be resumed on the 
original footing, at farthest in six 
months after the conclusion of a ge¬ 
neral peace. This was therefore an 
actual condition of every loan; and the 
terms of the loan were more favourable 
in consideration of it. Without some 
such stipulation, the Government could 
not have expected to borrow unless on 
the terms on which loans are made to 
the native princes of India. If it had 
been understood and avowed that, 
after borrowing the money, the 
standard at which it was computed 
might be permanently lowered, to any 
extent which to the “collective wis¬ 
dom” of a legislature of borrowers 
might seem fit—who can say what 
rate of interest would have been a suffi¬ 
cient inducement to persons of common 
sense to risk their savings in such an 
adventure ? However much the fund- 
holders had gained by the resumption 
of cash payments, the terms of the con¬ 
tract insured their giving ample value 
for it. They gave value for more than 
they received; since cash payments 
were not resumed in six months, but in 
as many years, after the jieace. So 
that waving all our arguments except 
the last, and conceding all the facts as¬ 
serted on the other side of the question, 
the fundholders, instead of being unduly 
benefited, are the injured party ; and 
would have a claim to compensation, if 
such claims were not very properly 
barred by the impossibility of adjudica¬ 
tion, and by the salutary general maxim 
of law and policy, that questions should 
at some time or another come lo an 
end. 


CHAPTER XIV. 


OF EXCESS OF SUPPLY. 


§ 1. Afteu the elementary exposi¬ 
tion of the theory of money contained 
in the last few chapters, we shall re¬ 


turn to a question in the general theory 
of Value, which could not be satisfac¬ 
torily discussed until the nature and 






EXCESS OF SUPPLY. 


operations of Money were in some 
measure understood, because the errors 
against which, we have to contend 
mainly originate in a misunderstand¬ 
ing of those operations. 

We have seen that the value of 
everything gravitates towards a cer¬ 
tain medium point (which has been 
called the Natural Value), namely, 
that at which it exchanges for every 
other thing in the ratio of their cost 
of .production^ We have seen, too, 
that the actual or market value coin¬ 
cides, or nearly so, with the natural 
value, only on an average of years ; 
and is continually either rising above, 
or falling below it, from alterations in 
the demand, or casual fluctuations in 
the supply: but that these variations 
correct themselves, through the ten¬ 
dency of the supply to accommodate 
itself to the demand which exists for 
the commodity at its natural value. A 
general convergence thus results from 
the balance of opposite divergences. 
Dearth, or scarcity, on the one hand, 
and over-supply, or, in mercantile lan¬ 
guage, glut, on the other, are incident 
to all commodities. In the first case, 
the commodity affords to the producers 
or sellers, while the deficiency lasts, an 
unusually high rate of profit: in the 
second, the supply being in excess of 
that for which a demand exists, at such 
a value as will afford the ordinary profit, 
the sellers must be content with less, 
and must, in extreme cases, submit to 
a loss. 

Because this phenomenon of over- 
supply, and consequent inconvenience 
or loss to the producer or dealer, 
may exist in the case of any one 
commodity whatever, many per¬ 
sons, including some distinguished 
political economists, have thought 
that it may exist with regard to 
all commodities; that there may be 
a general over-production of wealth; 
a supply of commodities in the aggre¬ 
gate, surpassing the demand; and a 
consequent depressed condition of all 
classes of producers. Against this doc¬ 
trine, of which Mr. Malthus and Dr. 
Chalmers in this country, and M. de 
Sismondi on the Continent, were the 
chief apostles, I have already con- 

i*.E. 


3L7 

tended in the First Book ;* but it was 
not possible, in that stage of our in¬ 
quiry, to enter into a complete exami¬ 
nation of an error (as I conceive) essen¬ 
tially grounded on a misunderstanding 
of the phenomena of Value and Price. 

The doctrine appears to me to in¬ 
volve so much inconsistency in its very 
conception, that I feel considerable 
difficulty in giving any statement of it 
which shall be at once clear, and satis¬ 
factory to its supporters. They agree 
in maintaining that there may be, and 
sometimes is, an excess of productions 
in general beyond the demand for 
them; that when this happens, pur¬ 
chasers cannot be found at prices which 
will repay the cost of production with 
a profit; that there ensues a general 
depression of prices or values (they are 
seldom accurate in discriminating be¬ 
tween the two), so that producers, the 
more they produce, find themselves 
the poorer, instead of richer: and Dr. 
Chalmers accordingly inculcates on 
capitalists the practice of a moral re¬ 
straint in reference to the pursuit of 
gain; while Sismondi deprecates ma¬ 
chinery, and the various inventions 
which increase productive power. They 
both maintain that accumulation of 
capital may proceed too fast, not merely 
for the moral, but for the material in¬ 
terests of those who produce and accu¬ 
mulate; and they enjoin the rich to 
guard against this evil by an ample 
unproductive consumption. 

§ 2. When these writers speak of 
the supply of commodities as out¬ 
running the demand, it is not clear 
which of the two elements of demand 
they have in view—the desire to pos¬ 
sess, or the means of purchase : whether 
their meaning is that there are, in such 
cases, more consumable products in 
existence than the public desires to 
consume, or merely more than it is 
able to pay for. In this uncertainty, 
it is necessary to examine both sup¬ 
positions. 

First, let us suppose that the quan¬ 
tity of commodities produced is not 
greater than the community would be 
glad to consume: is it, in that case, 
* Supra, pp. 41-43. 


Z 



338 


BOOK III. CHAPTER XIV. § 3. 


possible that there should he a defi¬ 
ciency of demand for all commodities, 
for want of the means of payment? 
Those who think so, cannot have con¬ 
sidered what it is which constitutes 
the means of payment for commodities. 
It is, simply, commodities. Each per¬ 
son’s means of paying for the produc¬ 
tions of other people consists of those 
which he himself possesses. All sellers 
are inevitably, and by the meaning of 
the word, buyers. Could we suddenly 
double the productive powers of the 
country, wo should double the supply 
of commodities in every mai-ket; but 
we should, by the same stroke, double 
the purchasing power. Everybody 
would bring a double demand as 
well as supply: everybody would be 
able to buy twice as much, because 
every one would have twice as much 
to offer in exchange. It is probable, 
indeed, that there would now be a super¬ 
fluity of certain things. Although the 
community would willingly double its 
aggregate consumption, it may already 
have as much as it desires of some 
commodities, and it may prefer to do 
more than double its consumption of 
others, or to exercise its increased pur¬ 
chasing power on some new thing. If 
so, the supply will adapt itself accord¬ 
ingly, and the values of things will 
continue to conform to their cost of 
production. At any rate, it is a sheer 
absurdity that all things should fall in 
value, and that all producers should, 
in consequence, be insufficiently remu¬ 
nerated. If values remain the same, 
what becomes of prices is immaterial, 
since the remuneration of producers 
does not depend on how much money, 
but on how much of consumable arti¬ 
cles, they obtain for their goods. Be¬ 
sides, money is a commodity; and if all 
commodities are supposed to be doubled 
in quantity, we must suppose money 
to be doubled too, and then prices 
would no more fall than values would. 

§ 3. A general over-supply, or ex¬ 
cess of all commodities above the de¬ 
mand, so far as demand consists in 
means of payment, is thus shown to 
be an impossibility. But it may, per¬ 
haps, be supposed that it is not the 


ability to purchase, but the desire to 
possess, that falls short, and that the 
general produce of industry may be 
greater than the community desires to 
consume—the part, at least, of (lie 
community which has an equivalent 
to give. It is evident enough, that 
produce makes a market for produce, 
and that there is wealth in the country 
with which to purchase all the wealth 
in the country; but those who have 
the means, may not hqve the wants, 
and those who have the wants may be 
without the means. A portion, there¬ 
fore, of the commodities produced may 
be unable to find a market, from the 
absence of means in those who have 
the desire to consume, and the w r ant 
of desire in those who have the means. 

This is much the most plausible form 
of the doctrine, and does not, like that 
which we first examined, involve a 
contradiction. There may easily be a 
greater quantity of any particular com¬ 
modity than is desired by those who 
have the ability to purchase, and it 
is abstractedly conceivable that this 
might be the case with all commodi¬ 
ties. The error is in not perceiving 
that though all who have an equivalent 
to give, might be fully provided with 
every consumable article which they 
desire, the fact that they go on adding 
to the production proves that this is 
not actually the case. Assume the 
most favourable hypothesis for the pur¬ 
pose, that of a limited community, 
every member of which possesses as 
much of necessaries and of all known 
luxuries as he desires: and since it is 
not conceivable that persons whose 
wants were completely satisfied w r ould 
labour and economize to obtain what 
they did not desire, suppose that a 
foreigner arrives, and produces an ad¬ 
ditional quantity of something of which 
there was already enough. Here, it 
will be said, is over-production : true, 

I reply; over-production of that par¬ 
ticular article: the community wanted 
no more of that, but it wanted some¬ 
thing. The old inhabitants, indeed, 
wanted nothing; but did not the 
foreigner himself want something? 
When he produced the superfluous 
article, was he labouring without a 




EXCESS OF SUPPLY. 


motive? He lias produced, but the 
wrong thing instead of the right. He 
wanted, perhaps, food, and has pro¬ 
duced watches, with which everybody 
was sufficiently supplied. The new 
comer brought with him into the 
country a demand for commodities, 
equal to all that he could produce by 
his industry, and it was his business 
to see that the supply he brought 
should be suitable to that demand. If 
lie could not produce something capa¬ 
ble of exciting a new want or desire in 
the community, for the satisfaction of 
which some one would grow more food 
and give it to him in exchange, he had 
the alternative of growing food for 
himself; either on fresh land, if there 
was any unoccupied, or as a tenant, or 
partner, or servant, of some former 
occupier, willing to be partially re¬ 
lieved from labour. He has produced 
a thing not wanted, instead of what 
was wanted; and he himself, perhaps, 
is not the kind of producer who is 
wanted; but there is no over-pro¬ 
duction : production is not excessive, 
but merely ill assorted. We saw be¬ 
fore, that whoever brings additional 
commodities to the market, brings an 
additional power of purchase ; we now 
see that he brings also an additional 
desire to consume: since if he had not 
that desire, he would not have troubled 
himself to produce. Neither of the 
elements of demand, therefore, can be 
wanting, when there is an additional 
supply ; though it is perfectly possible 
that the demand may be for one thing, 
and the supply may unfortunately con¬ 
sist of another. 

Driven to his last retreat, an oppo¬ 
nent may perhaps allege, that there 
are persons who produce and accu¬ 
mulate from mere habit; not because 
they have any object in growing richer, 
or desire to add in any respect to their 
consumption, but from vis inertias. 
They continue producing because the 
machine is ready mounted, and save 
and re-invest their savings because 
they have nothing on which they care 
to expend them. I grant that this is 
possible, and in some few instances 
probably happens; but these do not 
in the smallest degree affect our con- 


339 

elusion. For, what do these persons 
do with their savings? They invest 
them productively; that is, expend 
them in employing labour. In other 
words, having a purchasing power be¬ 
longing to them, more than they know 
what to do with, they make over the 
surplus of it for the general benefit of 
the labouring class. Now, will that 
class also not know what to do with 
it? Are we to suppose that they too 
have their wants perfectly satisfied, 
and go on labouring from mere habit? 
Until this is the case; until the work¬ 
ing classes have also reached the point 
of satiety—there will be no want of 
demand for the produce of capital, 
however rapidly it may accumulate: 
since, if there is nothing else for it to 
do, it can always find employment in 
producing the necessaries or luxuries 
of the labouring class. And when they 
too had no further desire for necessa¬ 
ries or luxuries, they would take the 
benefit of any further increase of wages 
by diminishing their work; so that the 
over-production which then for the first 
time would be possible in idea, could 
not even then take place in fact, for 
want of labourers. Thus, in whatever 
manner the question is looked at, even 
though we go to the extreme verge 
of possibility to invent a supposition 
favourable to it, the theory of general 
over-production implies an absurdity. 

§ 4. What then is it by which men 
who have reflected much on economical 
phenomena, and have even contributed 
to throw new light upon them by ori¬ 
ginal speculations, have been led to 
embrace so irrational a doctrine ? I 
conceive them to have been deceived 
by a mistaken interpretation of cer¬ 
tain mercantile facts. They imagined 
that the possibility of a general over¬ 
supply of commodities was proved by 
experience. They believed that they 
saw this phenomenon in certain con¬ 
ditions of the markets, the true ex¬ 
planation of which is totally different. 

I have already described the state 
of the markets for commodities which 
accompanies what is termed a com¬ 
mercial crisis. At such times there is 
really an excess of all commodities 

Z 2 




340 BOOK III. CHAPTER XIV. S 4. 


above the money demand: in other 
words, there is an under-supply of 
money. From the sudden annihilation 
of a great mass of credit, every one 
dislikes to part with ready money, and 
many are anxious to procure it at any 
sacrifice. Almost everybody therefore 
is a seller, and there are scarcely any 
buyers: so that there may really be, 
though only while the crisis lasts, an 
extreme depression of general prices, 
from what may be indiscriminately 
called a glut of commodities or a dearth 
of money. But it is a great error to 
suppose, with Sismondi, that a com¬ 
mercial crisis is the effect of a general 
excess of production. It is simply the 
consequence of an excess of speculative 
purchases. It is not a gradual advent 
of low prices, but a sudden recoil from 
prices extravagantly high: its imme¬ 
diate cause is a contraction of credit, 
and the i-emedy is, not a diminution of 
supply, but the restoration of confi¬ 
dence. It is also evident that this 
temporary derangement of markets is 
an evil only because it is temporary. 
The fall being solely of money prices, 
if prices did not rise again no dealer 
would lose, since the smaller price 
would be worth as much to him as the 
larger price was belore. In no manner 
does this phenomenon answer to the 
description which these celebrated 
economists have given of the evil of 
over-production. That permanent de¬ 
cline in the circumstances of producers, 
for want of markets, which those 
writers contemplate, is a conception to 
which the nature of a commercial 
crisis gives no support. 

The other phenomenon from which 
the notion of a general excess of wealth 
and superiluity of accumulation seems 
to derive countenance, is one of a more 
permanent nature, namely, the fall of 
profits and interest which naturally 
takes place with the progress of popu¬ 
lation and production. The cause of 
this decline of profit is the increased 
cost of maintaining labour, which re¬ 
sults from an increase of population 
and of the demand for food, outstrip¬ 
ping the advance of agricultural im¬ 
provement. This important feature in 
the economical progress of nations will 


receive full consideration and discus¬ 
sion in the succeeding Book.* It is 
obviously a totally different thing from 
a want of market for commodities, 
though often confounded with it in the 
complaints of the producing and trading 
classes. The true interpretation of the 
modern or present state of industrial 
economy is, that there is hardly any 
amount of business which may not be 
done, if people will be content to do it 
on small profits; and this, all active 
and intelligent persons in business 
perfectly well know: but even those 
who comply with the necessities of 
their time, grumble at what they 
comply with, and wish that there were 
less capital, or as they express it, less 
competition, in order that there might 
be greater profits. Low profits, how¬ 
ever, are a different thing from defi¬ 
ciency of demand; and the production 
and accumulation which merely reduce 
profits, cannot be called excess of 
supply or of production. What the 
phenomenon really is, and its effects 
and necessary limits, will be seen when 
we treat of that express subject. 

I know not of any economical facts, 
except the two I have specified, which 
can have given occasion to the opinion 
that a general over-production of com¬ 
modities ever presented itself in actual 
experience. I am convinced that there 
is no fact in commercial affairs, which, 
in order to its explanation, stands in 
need of that chimerical supposition. 

The point is fundamental; any dif¬ 
ference of opinion on it involves radi¬ 
cally different conceptions of political 
economy, especially in its practical 
aspect. On the one view, we have 
only to consider how a sufficient pro¬ 
duction may be combined with the best 
possible distribution ; but on the other 
there is a third thing to be considered 
—how a market can be created for 
produce, or how production can be 
limited to the capabilities of the 
market. Besides; a theory so essen¬ 
tially self-contradictory cannot intrude 
itself without carrying confusion into 
the very heart of the subject, and 
making it impossible even to conceive 
with*any distinctness many of the 
* Infra, book iv. ch. 4. 




MEASURE 

more complicated economical workings 
of society. This error has been, I con¬ 
ceive, fatal to the systems, as systems, 
of the three distinguished economists 
to whom I before referred, Maltlius, 
Chalmers, and Sismondi; all of whom 
have admirably conceived and ex¬ 
plained several of the elementary 
theorems of political economy, but 
this fatal misconception has spread 
itself like a veil between them and the 
more difficult portions of the subject, 
not suffering one ray of light to pene¬ 
trate. Still more is this same confused 
idea constantly crossing and bewilder¬ 
ing the speculations of minds inferior 
to theirs. It is but justice to two emi¬ 
nent names, to call attention to the 


OF VALUE. 341 

fact, that the merit of having placed 
this most important point in its true 
light, belongs principally, on the Con¬ 
tinent, to the judicious J. B. Say, and 
in this country to Mr. Mill; who (be¬ 
sides the conclusive exposition which 
he gave of the subject in his Elements 
of Political Economy) had set forth the 
correct doctrine with great force and 
clearness in an early pamphlet, called 
forth by a temporary controversy, and 
entitled, “Commerce Defended;” the 
first of his writings which attained any 
celebrity, and which he prized more as 
having been his first introduction to 
the friendship of David Ricardo, the 
most valued and most intimate friend¬ 
ship of his life. 


CHAPTER XV. 


OF A MEASURE OF VALUE. 


§ 1. There has been much discus¬ 
sion among political economists re¬ 
specting a Measure of Value. An 
importance has been attached to the 
subject greater than it deserved, and 
what has been written respecting it 
has contributed not a little to the re¬ 
proach of logomachy, which is brought, 
with much exaggeration, but not alto¬ 
gether without ground, against the 
speculations of political economists. It 
is necessary, however, to touch upon the 
subject, if only to show how little there 
is to be said on it. 

A Measure of Value, in the ordinary 
sense of the word measure, would mean, 
something, by comparison with which 
we may ascertain what is the value of 
any other thing. When we consider 
farther, that value itself is relative, and 
that two things are necessary to con¬ 
stitute it, independently of the third 
thing which is to measure it; we may 
define a Measure of Value to be some¬ 
thing, by comparing with which any 
two other things, wo may infer their 
value in relation to one another. 

In this sense, any commodity will 
serve as a measure of value at a given 
time and place; since we can always 


infer the proportion in which things 
exchange for one another, when we 
know the proportion in which each ex¬ 
changes for any third tiling. To serve 
as a convenient measure of value is 
one of the functions of the commodity 
selected as a medium of exchange. It 
is in that commodity that the values of 
all other things are habitually esti¬ 
mated. We say that one thing is 
worth 21., another 31 .; and it is then 
known without express statement, that 
one is worth two-thirds of the other, or 
that the things exchange for one an¬ 
other in the proportion of 2 to 3. Money 
is a complete measure of their value. 

But the desideratum sought by poli¬ 
tical economists is not a measure of 
the value of things at the same time 
and place, but a measure of the value 
of the same thing at different times 
and places: something by comparison 
with which it may be known whether 
any given thing is of greater or less 
value now than a centurv aero, or in 
this country than in America or China. 
And for this also, money, or any other 
commodity, will serve quite as well as 
at the same time- and place, provided 
we can obtain the same data ; provided 







BOOK III. CHAPTER XY. § 2. 


342 

we are able to compare with the mea¬ 
sure not one commodity only, hut the 
two or more which are necessary to the 
idea of value. If wheat is now 40s. 
the quarter, and a fat sheep the same, 
and if in the time of Henry the Second 
wheat was 20s., and a sheep 10s., we 
know that a quarter of wheat was then 
worth two sheep, and is now only worth 
one, and that the value therefore of a 
sheep, estimated in wheat, is twice as 
great as it was then ; quite indepen¬ 
dently of the value of money at the 
two periods, either in relation to those 
two articles (in respect to both of which 
we suppose it to have fallen), or to 
other commodities, in respect to which 
we need not make any supposition. 

What seems to be desired, however, 
by writers on the subject, is some means 
of ascertaining the value of a commodity 
by merely comparing it with the mea¬ 
sure, without referring it specially to 
any other given commodity. They 
■would wish to be able, from the mere 
fact that wheat is now 405. the quarter, 
and was formerly 205., to decide whe¬ 
ther -wheat has varied in its value, and 
in what degree, without selecting a 
second commodity, such as a sheep, to 
compare it with; because they are de¬ 
sirous of knowing, not how much wheat 
has varied in value relatively to sheep, 
but how much it has varied relatively 
to things in general. 

The first obstacle arises from the 
necessary indefiniteness of the idea of 
general exchange value—value in rela¬ 
tion not to some one commodity, but 
to commodities at large. Even if we 
knew exactly how* much a quarter of 
wheat w r ould have purchased at the 
earlier period, of every marketable 
article considered separately, and that 
it will now purchase more of some 
things and less of others, we should 
often find it impossible to say whether 
it had risen or fallen in relation to 
things in general. How much more 
impossible when we only know 7 how it 
has varied in relation to the measure. 
To enable the money price of a thing 
at two different periods to measure the 
quantity of things in general which it 
will exchange for, the same sum of 
money must correspond at both periods 


to the same quantity of things in 
general, that is, money must always 
have the same exchange value, the 
same general purchasing pow'er. Xow, 
not only is this not true of money, or 
of any other commodity, but we cannot 
even suppose any state of circumstances 
in which it would be true. 

§ 2. A measure of exchange value, 
therefore, being impossible, writers 
have formed a notion of something, 
under the name of a measure of value, 
which would be more properly termed 
a measure of cost of production. They 
have imagined a commodity invariably 
produced by the same quantity of 
labour: to which supposition it is 
necessary to add, that the fixed capital 
employed in the production must bear 
always the same proportion to the 
wages of the immediate labour, and 
must be always of the same durability: 
in short, the same capital must be ad¬ 
vanced for the same length of time, so 
that the element of value which con¬ 
sists of profits, as well as that which 
consists of wages, may be unchange¬ 
able. We should then have a com¬ 
modity always produced under one and 
the same combination of all the cir¬ 
cumstances which affect permanent 
value. Such a commodity would be by 
no means constant in its exchange 
value ; for (even without reckoning the 
temporary fluctuations arising from 
supply and demand) its exchange 
value would be altered by every change 
in the circumstances of production of 
the things against which it was ex¬ 
changed. But if there existed such a 
commodity, we should derive this ad¬ 
vantage from it, that whenever any 
other thing varied permanently in re¬ 
lation to it, we should know that the 
cause of variation w r as not in it, but 
in the other thing. It would thus be 
fitted to serve as a measure, not indeed 
of the value of other things, but of 
their cost of production. If a com¬ 
modity acquired a greater permanent 
purchasing power in relation to the 
invariable commodity, its cost of pro¬ 
duction must have become greater; 
and in the contrary case, less. This 
measure of cost, is what political 



MEASURE 

•economists have generally meant by a 
measure of value. 

But a measure of cost, though per¬ 
fectly conceivable, can no more exist 
in fact, than a measure of exchange 
value. There is no commodity which 
is invariable in its cost of production. 
Gold and silver are the least variable, 
but even these are liable to changes in 
their cost of production, from the ex¬ 
haustion of old sources of supply, the 
discovery of new, and improvements 
in the mode of working. If we attempt 
to ascertain the changes in the cost of 
production of any commodity from the 
changes in its money price, the conclu¬ 
sion will require to be corrected by the 
best allowance we can make for the 
intermediate changes in the cost of 
the production of money itself. 

Adam Smith fancied that there were 
two commodities peculiarly fitted to 
serve as a measure of value : corn, and 
labour. Of corn, he said that although 
its value fluctuates much from year to 
year, it does not vary greatly from cen¬ 
tury to century. This we now know 
to be an error: corn tends to rise in 
cost of production with every increase 
of population, and to fall with every 
improvement in agriculture, either in 
the country itself, or in any foreign 
country from which it draws a portion 
of its supplies. The supposed con¬ 
stancy of the cost of the production of 
corn depends on the maintenance of a 
complete equipoise between these an¬ 
tagonizing forces, an equipoise which, 
if ever realized, can only be accidental. 
With respect to labour as a measure of 
value, the language of Adam Smith is 
not uniform. He sometimes speaks of 
it as a good measure only for short 
periods, saying that the value of la¬ 
bour (or wages) does not vary much 
from year to year, though it does from 
generation to generation. On other 
occasions he speaks as if labour were 
intrinsically the most proper measure 
of value, on the ground that one day’s 
ordinary muscular exertion of one man, 
may be looked upon as always, to him, 
the same amount of effort or sacrifice. 
But this proposition, whether in itself 
admissible or not, discards the idea of 
exchange value altogether, substituting 


)F VALUE. 843 

a totally different idea, more analogous 
to value in use. If a day’s labour will 
purchase in America twice as much of 
ordinary consumable articles as in Eng¬ 
land, it seems a vain subtlety to insist 
on saying that labour is of the same 
value in both countries, and that it is 
the value of the other things which is 
different. Labour, in this case, may be 
correctly said to be twice as valuable, 
both in the market and to the labourer 
himself, in America as in England. 

If the object were to obtain an 
approximate measure by which to esti¬ 
mate value in use, perhaps nothing 
better could be chosen than one day’s 
subsistence of an average man, reckoned 
in the ordinary food consumed by the 
class of unskilled labourers. If in any 
country a pound of maize flour will sup¬ 
port a labouring man fora day, a thing 
might be deemed more or less valuable 
in proportion to the number of pounds 
of maize flour it exchanged for. If 
one thing, either by itself or by what 
it would purchase, could maintain a 
labouring man for a day, and another 
could maintain him for a week, there 
■would be some reason in saying that 
the one was worth, for ordinary human 
uses, seven times as much as the other. 
But this would not measure the worth 
of the thing to its possessor for his own 
purposes, which might be greater to 
airy amount, though it could not be less, 
than the worth of the food which the 
thing would purchase. 

The idea of a Measure of Value must 
not be confounded with the idea of the 
regulator, or determining principle, of 
value. When it is said by Ricardo and 
others, that the value of a thing is 
regulated by quantity of labour, they 
do not mean the quantity of labour for 
which the thing will exchange, but the 
quantity required for producing it. 
This, they mean to affirm, determines 
its value; causes it be of the value it is, 
and of no other. But when Adam 
Smith and Malthus say that labour is 
a measure of value, they do not mean 
the labour by which the thing was or 
can be made, but the quantity of labour 
which it will exchange for, or purchase; 
in other words, the value of the thing, 
estimated in labour. And they do noli 




344 BOOK 111. CHAPTER XVI. § 1. 


mean that this rcrjulates the general 
exchange value of the tiling, or has any 
effect in determining ..hat that value 
shall be, hut only ascertains what it is, 
and whether and how much it varies i 


from time to time and from place to 
place. To confound these two ideas, 
would he much the same thing as to 
overlook the distinction between the 
thermometer and the fire. 


CHAPTER XVI. 


OF SOME PECULIAR 

§ 1. The general laws of value, 
in all the more important cases of 
the interchange of commodities in 
the same country, have now been 
investigated. We examined, first, the 
case of monopoly, in which the value 
is determined by either a natural or 
an artificial limitation of quantity, 
that is, by demand and supply: 
secondly, the case of free competition, 
when the article can be produced in 
indefinite quantity at the same cost; 
in which case the permanent value is 
determined by the cost of production, 
and only the fluctuations by supply and 
demand : thirdly, a mixed case, that of 
the articles which can be produced in 
indefinite quantity, but not at the same 
cost; in which case the permanent 
value is determined by the greatest cost 
which it is necessary to incur in order 
to obtain the required supply. And 
lastly, we have found that money itself 
is a commodity of the third class ; that 
its value, in a state of freedom, is 
governed by the same laws as the values 
of other commodities of its class: and 
that prices, therefore, follow the same 
laws as values. 

From this it appears that demand 
and supply govern the fluctuations 
of values and prices in all cases, 
and the permanent values and prices 
of all things of which the supply is 
determined by any agency other than 
that of free competition : but that, under 
the regime of competition, things are, 
on the average, exchanged for each 
other at such values, and sold at such 
prices, as afford equal expectation of 
advantage to all classes of producers; 
which can only be when things ex- 1 


: CASES OF VALUE. 

change for one another in the ratio of 
their cost of production. 

It is now, however, necessary to take 
notice of certain cases, to which, from 
their peculiar nature, this law of ex¬ 
change value is inapplicable. 

It sometimes happens that two diffe¬ 
rent commodities have what may be 
termed a joint cost of production. They 
are both products of the same operation, 
or set of operations, and the outlay is 
incurred for the sake of both together, 
not part for one and part for the other. 
The same outlay would have to be in¬ 
curred for either of the two, if the other 
were not wanted or used at all. There 
are not a few instances of commodities 
thus associated in their production. 
For example, coke and coal-gas are 
both produced from the same material, 
and by tho same operation. In a more 
partial sense, mutton and wool are an 
example: beef, hides, and tallow: calves 
and dairy produce : chickens and eggs. 
Cost of production can have nothing to 
do with deciding the value of the asso¬ 
ciated commodities relatively to each 
other. It only decides their joint value. 
The gas and the coke together have to 
repay the expenses of their production, 
with the ordinary profit. To do this, a 
given quantity of gas, together with 
the coke which is the residuum of its 
manufacture, must exchange for other 
things in the ratio of their joint cost of 
production. But how much of the re¬ 
muneration of the producer shall be 
derived from the coke, and how much 
from the gas, remains to be decided. 
Cost of production does not determine 
their prices, but the sum of their prices. 

1 A principle is wanting to apportion 






SOME PECULIAR CASES OF VALUE. 


tlie expenses of production between the 

tAVO. 

Since cost of production here foils us, 
Ave must revert to a law of value ante¬ 
rior to cost of production, and more 
fundamental, the Ihav of demand and 
supply. The laAv is, that the demand 
tor a commodity varies A\dth its value, 
and that the value adjusts itself so that 
the demand shall he equal to the supply. 
This supplies the principle of reparti¬ 
tion Avliich aac are in quest of. 

Suppose that a certain quantity of 
gas is produced and sold at a certain 
price, and that the residuum of coke is 
offered at a price which, together Avitli 
that of the gas, repays the expenses 
Avith the ordinary rate of profit. Sup¬ 
pose, too, that at the price put upon the 
gas and coke respectrtely, theAvhole of 
the gas finds an easy market, Avitliout 
either surplus or deficiency, but that 
purchasers cannot he found for all the 
coke corresponding to it. The coke 
Avill he offered at a lower price in order 
to force a market. But this lower price, 
together with the price of gas, will not 
he remunerating: the manufacture, as 
a Avhole, Avill not pay its expenses Avith 
the ordinary profit, and Avill not, on 
these terms, continue to he carried on. 
The gas, therefore, must he sold at a 
higher price, to make up for the defi¬ 
ciency on the coke. The demand con¬ 
sequently contracting, the production 
will he someAA'hat reduced ; and prices 
will become stationary Avhen, by the 
joint effect of the rise of gas and the 
fall of coke, so much less of the first is 
sold, and so much more of the second, 
that there is now a market for all the 
coke which results from the existing 
extent of the gas manufacture. 

Or suppose the reverse case; that 
more coke is Avanted at the present 
prices than can he supplied by the 
operations required by the existing de¬ 
mand. for gas. Coke, being now in de¬ 
ficiency, will rise in price. The Avhole 
operation will yield more than the 
usual rate of profit, and additional capi¬ 
tal Avill he attracted to the manufacture. 
The unsatisfied demand for coke will 
he supplied; hut this cannot he done 
Avitliout increasing the supply of gas too; 
and as the existing demand Avas fully 


345 

supplied already, an increased quantity 
can only find a market by lowering 
the price. The result Avill he that the 
tAvo together will yield the return re¬ 
quired by their joint cost of production, 
hut that more of this return than before 
Avill he furnished by the coke, and 
less by the gas. Equilibrium will he 
attained when the demand for each 
article fits so well Avith the demand for 
the other, that the quantity required 
of each is exactly as much as is gene¬ 
rated in producing the quantity re¬ 
quired of the other. . If there is any 
surplus or deficiency on either side; if 
there is a demand for coke, and not a 
demand for all the gas produced along 
with it, or vice versa; the values and 
prices of the tAvo things Avi 11 so readjust 
themselves that both shall find a 
market. 

When, therefore, two or more com¬ 
modities have a joint cost of production, 
their natural values relatively to each 
other are those which will create a 
demand for each, in the ratio of the 
quantities in Avhich they are sent 
forth by the productive process. This 
theorem is not in itself of any great 
importance: hut the illustration it 
affords of the laAv of demand, and of 
the mode in Avhich, Avhen cost of pro¬ 
duction fails to he applicable, the other 
principle steps in to supply the vacancy, 
is Avorthy of particular attention, as 
Ave shall find in the next chapter hut 
one that something very similar takes 
place in cases of much greater moment. 

§ 2. Another case of value which 
merits attention, is that of the different 
kinds of agricultural produce. This is 
rather a more complex question than 
the last, and requires that attention 
should he paid to a greater number of 
influencing circumstances. 

The case Avould present nothing pe¬ 
culiar, if different agricultural products 
were either groAvn indiscriminately and 
Avith equal advantage on the same 
soils, or A\diolly on different soils. The 
difficulty arises from two things : first, 
that most soils are fitter for one kind 
of produce than another, without being 
absolutely unfit for any; and secondly, 
the rotation of crops. 



BOOK III. CHAPTER XVI. § 2. 


346 

For simplicity, we will confine onr 
supposition to two kinds of agricultural 
produce ; for instance, wheat and oats. 
If all soils were equally adapted for 
wheat and for oats, both would be 
grown indiscriminately on all soils, and 
their relative cost of production, being 
the same everywhere, would govern 
their relative value. If the same labour 
which grows three quarters of wheat 
on any given soil, would always grow 
on that soil five quarters of oats, the 
three and the five quarters would be of 
the same value. If, again, wheat and 
•oats could not be grown on the same 
soil at all, the value of each would be 
determined by its peculiar cost of pro¬ 
duction on the least favourable of the 
soils adapted for it which the existing 
demand required a recourse to. The 
fact, however, is that both wheat and j 
oats can be grown on almost any soil 
which is capable of producing either: 
but some soils, such as the stiff clays, 
are better adapted for wheat, -while 
others (the light sandy soils) are more 
suitable for oats. There might be some 
soils which would yield, to the same 
quantity of labour, only four quarters of 
oats to three of wheat; others perhaps 
less than three of wheat to five quarters 
of oats. Among these diversities, what 
determines the relative value of the 
two things ? 

It is evident that each grain will be 
cultivated in preference, on the soils 
which are better adapted for it than 
for the other; and if the demand is 
supplied from these alone, the values of 
the two grains will have no reference 
to one another. But when the demand 
for both is such as to require that each 
should be grown not only on the soils 
peculiarly fitted for it, but on the 
medium soils which, without being spe¬ 
cifically adapted to either, are about 
equally suited for both, the cost of 
production on those medium soils will 
determine the relative value of the two 
grains; while the rent of the soils 
specifically adapted to each, will be 
regulated by their productive power, 
considered with reference to that one 
alone to which they are peculiarly 
applicable. Thus far the question pre¬ 
sents no difficulty, to any one to whom 


the general principles of value are 
familiar. 

It may happen, however, that the 
demand for one of the two, as for 
example wheat, may so outstrip the 
demand for the other, as not only to 
occupy the soils specially suited for 
wheat, but to engross entirely those 
equally suitable to both, and even en¬ 
croach upon those which are better 
adapted to oats. To create an induce¬ 
ment for this unequal apportionment of 
the cultivation, wheat must be ;rela¬ 
tively dearer, and oats cheaper, than 
according to the cost of their production 
on the medium land. Their relative 
value must be in proportion to the cost 
on that quality of land, whatever it 
may be, on which the comparative de¬ 
mand for the two grains requires that 
| both of them should be grown. If, from 
the state of the demand, the two culti¬ 
vations meet on land more favourable 
to one than to the other, that one will 
be cheaper and the other dearer, in 
relation to each other and to things in 
general, than if the proportional de¬ 
mand were as we at first supposed. 

Here, then, we obtain a fresh illus¬ 
tration, in a somewhat different manner, 
of the operation of demand, not as an 
occasional disturber of value, but as a 
permanent regulator of it, conjoined 
with, or supplementary to, cost of 
production. 

The case of rotation of crops does 
not require separate analysis, being a 
case of joint cost of production, like 
that of gas and coke. If it were the 
practice to grow white and green crops 
on all lands in alternate years, the one 
being necessary as much for the sake 
of the other as for its own sake; the 
farmer would derive his remuneration 
lor two years’ expenses from one white 
and one green crop, and tho prices of 
the two would so adjust themselves as 
to create a demand which would carry 
off an equal breadth of white and of 
green crops. 

There would be little difficulty in 
finding other anomalous cases of value, 
which it might be a useful exercise to 
resolve : but it is neither desirable nor 
possible, in a work like the present, to 
enter more into details than is neces- 








INTERNATIONAL TRADE. 


347 


sary for the elucidation of principles. 
I now therefore proceed to the only 
part of the general theory of exchange 
"which has not yet been touched upon, 


that of International Exchanges, or to 
speak more generally, exchanges be¬ 
tween distant places. 


CHAPTER XVII. 

OF INTERNATIONAL TRADE. 


§ 1. The causes which occasion a 
commodity to be brought from a dis¬ 
tance, instead of being produced, as 
convenience would seem to dictate, as 
near as possible to the market where 
it'is to be sold for consumption, are 
usually conceived in a rather superficial 
manner. Some things it is physically 
impossible to produce, except in par¬ 
ticular circumstances of heat, soil, 
water, or atmosphere. But there are 
many things which, though they could 
be produced at home without difficulty 
and in any quantity, are yet imported 
from a distance. The explanation 
which would be popularly given of this 
would be, that it is cheaper to import 
than to produce them : and this is the 
true reason. But this reason itself 
requires that a reason be given for it. 
Of two things produced in the same 
place, if one is cheaper than the other, 
the reason is that it can be produced 
with less labour and capital, or, in a 
word, at less cost. Is this also the 
reason as between things produced in 
different places? Are things never 
imported but from places where they 
can be produced with less labour (or 
less of the other element of cost, time) 
than in the place to which they are 
brought? Does the law, that perma¬ 
nent value is proportioned to cost of 
production, hold good between com¬ 
modities produced in distant places, as 
it does between those produced in ad¬ 
jacent places ? 

We shall find that it does not. A 
thing may sometimes be sold cheapest, 
by being produced in some other place 
than that at which it can be produced 
with the smallest amount of labour 
and abstinence. England might import j 


corn from Poland and pay for it in cloth, 
even though England had a decided 
advantage over Poland in the produc¬ 
tion of both the one and the other. 
England might send cottons to Por¬ 
tugal in exchange for wine, although 
Portugal might be able to produce 
cottons with a less amount of labour 
and capital than England could. 

This could not happen between ad¬ 
jacent places. If the north bank of the 
Thames possessed an advantage over 
the south bank in the production of 
shoes, no shoes would be produced on 
the south side ; the shoemakers would 
remove themselves and their capitals 
to the north bank, or would have esta¬ 
blished themselves there originally; 
for, being competitors in the same 
market with those on the north side, 
they could not compensate themselves 
for their disadvantage at the expense 
of the consumer: the amount of it 
would fall entirely on their profits; 
and they would not long content them¬ 
selves with a smaller profit, when, by 
simply crossing a river, they could 
increase it. But between distant 
places, and especially between differ¬ 
ent countries, profits may continue dif¬ 
ferent : because persons do not usually 
remove themselves or their capitals to 
a distant place without a very strong 
motive. If capital removed to remote 
parts of the world as readily, and for as 
small an inducement, as it moves to 
another quarter of the same town ; if 
people would transport their manufac¬ 
tories to America or China whenever 
they could save a small percentage in 
their expenses by it; profits would bo 
alike (or equivalent) all over the world, 
j and all things would be produced in 








348 


BOOK III. CHAPTER XVII. § 2. 


the places where the same labour and 
capital would produce them in greatest 
quantity and of best quality. A ten¬ 
dency may, even now. he observed 
towards such a state of things ; capital 
is becoming more and more cosmopoli¬ 
tan ; there is so much greater similarity 
of manners and institutions than for¬ 
merly, and so much less alienation of feel¬ 
ing, amoiA; the more civilized countries, 
that both population and capital now 
move from one of those countries to 
another on much less temptation than 
heretofore. But there are still extra¬ 
ordinary differences, both of wages and 
of profits, between different parts of 
the world. It needs but a small motive 
to transplant capital, or even persons, 
from Warwickshire to Yorkshire : but 
a much greater to make them remove 
to India, the colonies, or Ireland. To 
France, Germany, or Switzerland, ca¬ 
pital moves perhaps almost as readily as 
to the colonies; the differences of lan¬ 
guage and government being scarcely 
so great a hindrance as climate and 
distance. To countries still barbarous, 
or, like Russia or Turkey, only be¬ 
ginning to be civilized, capital will not 
migrate, unless under the inducement 
of a very great extra profit. 

Between all distant places therefore 
in some degree, but especially between 
different countries (whether under the 
same supreme government or not), 
there may exist great inequalities in 
the return to labour and capital, with¬ 
out causing them to move from one 
place to the other in such quantity as 
to level those inequalities. The capital 
belonging to a country will, to a great 
extent, remain in the country, even if 
there be no mode of employing it in 
which it would not be more productive 
elsewhere. Yet even a country thus cir¬ 
cumstanced might, and probably would, 
carry on trade with other countries. It 
would export articles of some sort, even 
to places which could make them with 
less labour than itself; because those 
countries, supposing them to have an 
advantage over it in all productions, 
would have a greater advantage in 
some things*tlian in others, and would 
find it their interest to import the 
articles in which their advantage was 


smallest, that they might employ more • 
of their labour and capital on those in 
which it was greatest. 

§ 2. As I have said elsewhere* after 
Ricardo (the thinker who has done 
most towards clearing up this subject),+ 

“ it is not a difference in the absolute 
cost of production, which determines 
the interchange, but a difference in the 
comparative cost. It may be to our 
advantage to procure iron from Sweden 
in exchange for cottons, even although 
the mines of England as well as her 
manufactories should be more produc¬ 
tive than those of Sweden; for if we 
have an advantage of one-half in cot¬ 
tons, and only an advantage of a 
quarter in iron, and could sell our 
cottons to Sweden at the price which 
Sweden must pay for them if she pro¬ 
duced them herself, we should obtain 
our iron with an advantage of onedialf, 
as well as our cottons. We may often, 
by trading with foreigners, obtain their 
commodities at a smaller expense of 
labour and capital than they cost to 
the foreigners themselves. The bargain 
is still advantageous to the foreigner, 
because the commodity which he re¬ 
ceives in exchange, though it has cost 
us less, would have cost him more.” 

To illustrate the cases in which in¬ 
terchange of commodities will not, and 
those in which it will, take place be¬ 
tween two countries, Mr. Mill, in his 
Elements of Political Economy,! makes 
the supposition, that Poland has an 
advantage over England in the produc¬ 
tion both of cloth and of corn. ] le first 
supposes the advantage to be of equal 
amount in both commodities: the cloth 
and the corn, each of which required 
100 days labour in Poland, requiring* 

* Essays on some Unsettled Questions of 
Political Economy, Essay 1. 

t I at one time believed Mr. Ricardo to 
have been the sole author of the doctrine 
now universally received by political econo¬ 
mists, on the nature and measure of the be¬ 
nefit which a country derives from foreign 
trade. But Colonel Torrens, by the repub¬ 
lication of one of his early writings. The 
Economists Refuted, has established at least 
a joint claim with Mr. Ricardo to the origi¬ 
nation of the doctrine, and an exclusive one 
to its earliest publication. 

X Third ed. p. 120. 



INTERNATIONAL TRADE. 


340 


each 150 days labour in England. “ It 
■would follow that the cloth of 150 days 
labour in England, if sent to Poland, 
would be equal to the cloth of 100 days 
labour in Poland; if exchanged for corn, 
therefore, it would exchange for the 
corn of only 100 days labour. But the 
corn of 100 days labour in Poland, was 
supposed to be the same quantity with 
that of 150 days labour in England. 
With 150 days labour in cloth, there¬ 
fore, England would only get as much 
corn in Poland as she could raise with 
150 days labour at home; and she 
would, in importing it, have the cost 
of carnage besides. In these cii’cum- 
stances no exchange would take place.’’ 
In this case the comparative costs of 
the two articles in England and in 
Poland were supposed to be the same, 
though the absolute costs were differ¬ 
ent ; on which supposition we see that 
there would be no labour saved to 
either country by confining its industry 
to one of the two productions, and im¬ 
porting the other. 

It is otherwise when the comparat ive, 
and not merely the absolute costs of the 
two articles are different in the two 
countries. “If,” continues the same 
author, “ while the cloth produced with 
100 days labour in Poland was pro¬ 
duced with 150 days labour in England, 
the corn which was produced in Poland 
with 100 days labour could not be pro¬ 
duced in England with less than 200 
days labour ; an adequate motive to ex¬ 
change would immediately arise. With 
a quantity of cloth which England pro¬ 
duced with 150 days labour, she would 
be able to purchase as much corn in 
Poland as was there produced with 100 
days labour; but the quantity which 
was there produced with 100 days 
labour, would be as great as the quan¬ 
tity produced in England with 200 days 
labour.” By importing corn, therefore, 
from Poland, and paying for it with 
cloth, England would obtain for 150 
days labour what would otherwise cost 
her 200; being a saving of 50 days 
labour on each repetition of the trans¬ 
action : and not merely a saving to 
England, but a saving absolutely; for 
it is not obtained at the expense of 
Poland, who, with corn that costs her 


100 days labour, has purchased cloth 
which, if produced at home, would have 
cost her the same. Poland, therefore, 
on this supposition, loses nothing; but 
also she derives no advantage from the 
trade, the imported cloth costing her as 
much as if it were made at home. To 
enable Poland to gain anything by the 
interchange, something must be abated 
from the gain of England : the corn pro¬ 
duced in Poland by 100 days labour, 
must be able to purchase from England 
more cloth than Poland could produce 
by that amount of labour; more there¬ 
fore than England could produce by 
150 days labour, England thus obtain¬ 
ing the corn which would have cost 
her 200 days, at a cost exceeding 150, 
though short of 200. England there¬ 
fore no longer gains the whole of the 
labour which is saved to the two jointly 
by trading with one another. 

§ 3. From this exposition we per¬ 
ceive in what consists the benefit of 
international exchange, or in other 
words, foreign commerce. Setting aside 
its enabling countries to obtain com¬ 
modities which they could not them¬ 
selves produce at all; its advantage 
consists in a more efficient employ¬ 
ment of the productive forces of the 
world. If two countries which trade 
together attempted, as far as was phy¬ 
sically possible, to produce for them¬ 
selves what they now import from one 
another, the labour and capital of the 
two countries would not be so pro¬ 
ductive, the two together would not 
obtain from their industry so great a 
quantity of commodities, as when each 
employs itself in producing, both for 
itself and for the other, the things in 
which its labour is relatively most 
efficient. The addition thus made to 
the produce of the two combined, con¬ 
stitutes the advantage of the trade. 
It is possible that one of the two 
countries may be altogether inferior 
to the other in productive capacities, 
and that its labour and capital could 
be employed to greatest advantage by 
being removed bodily to the other. 
The labour and capital which have 
been sunk in rendering Holland habit¬ 
able, would have produced a much 




350 BOOK III. CHAPTER XVII. $ 4. 


greater return if transported to Ame¬ 
rica or Ireland. The produce of the 
whole world would he greater, or the 
labour less, than it is, if everything 
were produced where there is the 
greatest absolute facility for its pro¬ 
duction. But nations do not, at least 
in modern times, emigrate en masse; 
and while the labour and capital of a 
country remain in the country, they 
are most beneficially employed in pro¬ 
ducing for foreign markets as well as 
for its own, the things in which it lies 
under the least disadvantage, if there 
be none in which it possesses an ad¬ 
vantage. 

§ 4. Before proceeding further, let 
us contrast this view of the benefits 
of international commerce with other 
theories which have prevailed, and 
which to a certain extent still prevail, 
on the same subject. 

According to the doctrine now stated, 
the only direct advantage of foreign 
commerce consists in the imports. A 
country obtains things which it either 
could not have produced at all, or which 
it must have produced at a greater ex¬ 
pense of capital and labour than the 
cost of the things which it exports to 
pay for them. It thus obtains a more 
ample supply of the commodities it 
wants, for the same labour and capital; 
or the same supply, for less labour and 
capital, leaving the surplus disposable 
to produce other things. The vulgar 
theory disregards this benefit, and 
deems the advantage of commerce to 
reside in the exports: as if not what a 
country obtains, but what it parts with, 
by its foreign trade, was supposed to 
constitute the gain to it. An extended 
market for its produce—an abundant 
consumption for its goods—a vent for 
its surplus—are the phrases by which 
it has been customary to designate the 
uses and recommendations of commerce 
with foreign countries. This notion is 
intelligible, when we consider that the 
authors and leaders of opinion on mer¬ 
cantile questions have always hitherto 
been the selling class. It is in truth 
a surviving relic of the Mercantile 
Theory, according to which, money 
being the only wealth, selling, or in 


other words, exchanging goods for 
money, was (to countries without 
mines of their own) the only way of 
growing rich — and importation of 
goods, that is to say, parting with 
money, was so much subtracted from 
the benefit. 

The notion that money alone is 
wealth, has been long defunct, but it 
has left many of its progeny behind 
it; and even its destroyer, Adam Smith, 
retained some opinions which it is im¬ 
possible to trace to any other origin. 
Adam Smith’s theory of the benefit of 
foreign trade, was that it afforded an out¬ 
let for the surplus produce of a country, 
and enabled a portion of the capital 
of the country to replace itself with a 
profit. These expressions suggest ideas 
inconsistent with a clear conception of 
the phenomena. The expression, sur¬ 
plus produce, seems to imply that a 
country is under some kind of neces¬ 
sity of producing the com or cloth 
which it exports; so that the portion 
which it does not itself consume, if 
not wanted and consumed elsewhere, 
would either be produced in sheer 
waste, or if it were not produced, the 
corresponding portion of capital would 
remain idle, and the mass of productions 
in the country would he diminished by 
so much. Either of these suppositions 
would be entirely erroneous. The 
country produces an exportable article 
in excess of its own wants, from no in¬ 
herent necessity, but as the cheapest 
mode of supplying itself with other 
things. If prevented from exporting this 
surplus, it would cease to produce it, and 
would no longer import anything, being 
unable to give an equivalent; but the 
labour and capital which had been 
employed in producing with a view to 
exportation, would find employment in 
producing those desirable objects which 
were previously brought from abroad : 
or, if some of them could not be pro¬ 
duced, in producing substitutes for 
them. These articles would of course 
be produced at a greater cost than that 
of the things with which they had pre¬ 
viously been purchased from foreign 
countries. But the value and price of 
the articles would rise in proportion; 
and the capital would just as much be 




INTERNATIONAL TRADE. 


replaced, with the ordinary profit, from 
the returns, as it was when employed 
in producing for the foreign market. 
The only losers (after the temporary 
inconvenience of the change) would be 
the consumers of the heretofore im¬ 
ported articles; who would he obliged 
either to do without them, consuming 
in lieu of them something which they 
did not like as well, or to pay a higher 
price for them than before. 

There is much misconception in the 
common notion of what commerce does 
for a country. When commerce is 
spoken of as a source of national 
wealth, the imagination fixes itself 
upon the large fortunes acquired by 
merchants, rather than upon the saving 
of price to consumers. Rut the gains 
of merchants, when they enjoy no ex¬ 
clusive privilege, are no greater than 
the profits obtained by the employment 
of capital in the country itself. If it 
be said that the capital now employed 
in foreign trade could not find employ¬ 
ment in supplying the home market, I 
might reply, that this is the fallacy of 
general over-production, discussed in a 
former chapter: but the thing is in this 
particular case too evident, to require 
an appeal to any general theory. We 
not only see that the capital of the 
merchant would find employment, but 
we see what employment. There would 
bo employment created, equal to that 
which would be taken away. Exporta¬ 
tion ceasing, importation to an equal 
value would cease also, and all that 
part of the income of the country 
which had been expended in imported 
commodities, would be ready to expend 
itself on the same things produced at 
home, or on others instead of them. 
Commerce is virtually a mode of cheap¬ 
ening production ; and in all such cases 
the consumer is the person ultimately 
benefited; the dealer, in the end, is 
sure to get his profit, whether the buyer 
obtains much or little for his money. 
This is said without prejudice to the 
effect (already touched upon, and to 
be hereafter fully discussed) which the 
cheapening of commodities may have 
in raising profits; in the case when 
the commodity cheapened, being one 
of those consumed by labourers, enters 


351' 

into the cost of labour, by which the 
rate of profits is determined. 

§ 5. Such, then, is the direct eco¬ 
nomical advantage of foreign trade. 
But there are, besides, indirect effects, 
which must be counted as benefits of 
a high order. One is, the tendency of 
every extension of the market to im¬ 
prove the processes of production. A 
country which produces for a larger 
market than its own, can introduce a 
more extended division of labour, can 
make greater use of machinery, and is 
more likely to make inventions and 
improvements in the processes of pro¬ 
duction. Whatever causes a greater 
quantity of anything to be produced 
in the same place, tends to the general 
increase of the productive powers of 
the world.* There is another con¬ 
sideration, principally applicable to an 
early stage of industrial advancement. 
A people may be in a quiescent, in¬ 
dolent, uncultivated state, with all 
their tastes either fully satisfied or 
entirely undeveloped, and they may 
fail to put forth the whole of their pro¬ 
ductive energies for Avant of any suffi¬ 
cient object of desire. The opening of 
a foreign trade, by making them ac¬ 
quainted with new objects, or tempting 
them by the easier acquisition of things 
which they had not previously thought 
attainable, sometimes works a sort of 
industrial revolution in a country whose 
resources were previously undeveloped 
for want of energy and ambition in 
the people: inducing those who were 
satisfied with scanty comforts and little 
work, to work harder for the gratifica¬ 
tion of their new tastes, and even to 
save, and accumulate capital, for the 
still more complete satisfaction of those 
tastes at a future time. 

But the economical advantages of 
commerce are surpassed in importance 
by those of its effects, which are in¬ 
tellectual and moral. It is hardly pos¬ 
sible to overrate the value, in the pre¬ 
sent low state of human improvement, 
of placing human beings in contact 
with persons dissimilar to themselves, 
and with modes of thought and action 

* Vide supra, book i. ch. ix. 5 1. 



352 BOOK III. CHAPTER XVIII. $ 1. 


unlike those with which they are fami¬ 
liar. Commerce is now, what war once 
was, the principal source of this con¬ 
tact. Commercial adventurers from 
more advanced countries have gene¬ 
rally been the first civilizers of bar¬ 
barians. And commerce is the purpose 
of the far greater part of the communi¬ 
cation which takes place between civi¬ 
lized nations. Such communication 
has always been, and is peculiarly in 
the present age, one of the primary 
sources of progress. To human beings, 
who, as hitherto educated, can scarcely 
cultivate even a good quality without 
running it into a fault, it is indispen¬ 
sable to be perpetually comparing their 
own notions and customs with the expe¬ 
rience ...id example of persons in dif¬ 
ferent circumstances from themselves: 
and there is no nation which does not 
need to borrow from others, not merely 
particular arts or practices, but essen¬ 


tial points of character in which its 
own type is inferior. Finally, com¬ 
merce first taught nations to see with 
good-will the wealth and prosperity of 
one another. Before, the patriot, un¬ 
less sufficiently advanced in culture to 
feel the world his country, wished all 
countries weak, poor, and ill-governed, 
but his own: he now sees in their 
wealth and progress a direct source of 
wealth and progress to his own country. 
It is commerce which is rapidly ren¬ 
dering war obsolete, by strengthening 
and multiplying the personal interests 
which are in natural opposition to it. 
And it may be said without exaggera¬ 
tion, that the great extent and rapid 
increase of international trade, in being 
the principal guarantee of the peace of 
the world, is the great permanent se¬ 
curity for the uninterrupted progress of 
the ideas, the institutions, and the cha¬ 
racter of the human race. 


CHAPTER XVIII. 

OF INTERNATIONAL VALUES. 


§ 1. The values of commodities 
produced at the same place, or in 
places sufficiently adjacent for capital 
to move freely between them—let us 
say, lor simplicity, of commodities 
produced in the same country—depend 
(temporary fluctuations apart) upon 
their cost of production. But the value 
of a commodity brought from a distant 
place, especially from a foreign country, 
does not depend on its cost of produc¬ 
tion in the place from whence it comes. 
On what, then, does it depend ? The 
value of a thing in any place, depends 
on the cost of its acquisition in that 
place; which in the case of an imported 
article, means the cost of production of 
the thing which is exported to pay 
for it. 

Since all trade is in reality barter, 
money being a mere instrument for 
exchanging things against one another, 
we will, for simplicity, begin by sup¬ 
posing the international trade to be in 


form, what it always is in reality, an 
actual trucking of one commodity 
against another. As far as we have 
hitherto proceeded, we have found all 
the laws of interchange to be essen¬ 
tially the same, whether money is used 
or not; money never governing, but 
always obeying, those general laws. 

If, then, England imports wine from 
Spain, giving for every pipe of wine 
a bale of clotb, the exchange value 
of a pipe of wine in England wiil 
not depend upon what the produc¬ 
tion of the wiue may have cost in 
Spain, but upon what the production 
ot the cloth has cost in England. 
Though the wine may have cost 
in Spain the equivalent of only ten 
days labour, yet, if the cloth costs in 
England twenty days labour, the wine, 
when brought to England, will ex¬ 
change for the produce of twenty days 
English labour, plus the cost of car¬ 
riage ; including the usual profit on the 


1 





INTERNATIONAL VALUES. 353 


importer’s capital during the time it is 
locked up, and withheld from other 
employment. 

The value, then, in any country, of 
a foreign commodity, depends on the 
quantity of home produce which must 
be given to the foreign country in ex¬ 
change for it. In other words, the 
values of foreign commodities depend 
on the terms of international exchange. 
What, then, do these depend upon? 
"What is it, which, in the case sup¬ 
posed, causes a pipe of wine from Spain 
to he exchanged with England for 
exactly that quantity of cloth? We 
have seen that it is not their cost of 
production. If the cloth and the wine 
were both made in Spain, they would 
exchange at their cost of production in 
Spain; if they were both made in 
England, they would exchange at their 
cost of production in England: but all 
the cloth being made in England, and 
all the wine in Spain, they are in cir¬ 
cumstances to which we have already 
determined that the law of cost of pro¬ 
duction is not applicable. We must 
accordingly, as we have done before in 
a similar embarrassment, fall back 
upon an antecedent law, that of supply 
and demand: and in this we shall 
• again find the solution of our difficulty. 

I have discussed this question in a 
separate Essay, already once referred 
to; and a quotation of part of the 
exposition then given, will be the best 
introduction to my present view of the 
subject. I must give notice that we 
are now in the region of the most 
complicated questions which political 
economy affords; that the subject is 
one which cannot possibly be made 
elementary; and that a more continu¬ 
ous effort of attention than has yet 
been required, will be necessary to 
follow the series of deductions. The 
thread, however, which we are about 
to take in hand, is in itself very simple 
and manageable ; the only difficulty is 
in following it through the windings 
and entanglements of complex interna¬ 
tional' transactions. 

§ 2. “When the trade is esta¬ 
blished between the two countries, the 
two commodities will exchange for 

P.E. 


each other at the same rate of inter¬ 
change in both countries—bating the 
cost of carriage, of which, for the pre¬ 
sent, it will be more convenient to omit 
the consideration. Supposing, there¬ 
fore, for the sake of argument, that the 
carriage of the commodities from one 
country to the other could be effected 
without labour and without cost, no 
sooner would the trade be opened than 
the value of the two commodities, esti¬ 
mated in each other, would come to a 
level in both countries. 

“ Suppose that 10 yards of broad¬ 
cloth cost in England as much labour 
as 15 yards of linen, and in Germany 
as much as 20.” In common with 
most of my predecessors, I find it ad¬ 
visable, in these intricate investiga¬ 
tions, to give distinctness and fixity to 
the conception by numerical examples. 
These examples must sometimes, as in 
the present case, be purely suppositi¬ 
tious. I should have preferred real 
ones; but all that is essential is, that 
the numbers should be such as admit 
of being easily followed through the 
subsequent combinations into which 
they enter. 

This supposition then being made, 
it would be the interest of England to 
import linen from Germany, and of 
Germany to import cloth from England. 
“ When each country produced both 
commodities for itself, 10 yards of cloth 
exchanged for 15 yards of linen in 
England, and for 20 in Germany. They 
will now exchange for the same number 
of yards of linen in both. For what 
number? If for 15 yards, England 
will be just as she was, and Germany 
will gain all. If for 20 yards, Germany 
will be as before, and England will 
derive the whole of the benefit. If for 
any number intermediate between 15 
and 20, the advantage will be shared 
between the two countries. If, for 
example, 10 yards of cloth exchange 
for 18 of linen, England will gain an 
advantage of 3 yards on every 15, 
Germany will save 2 out of every 20. 
The / problem is, what are the causes 
which determine the proportion in 
which the cloth of England and the 
linen of Germany wid exchange for 
each other. 


A A 



BOOK III. CHAPTER XVIII. § 2. 


354 

“ As exchange value, in this case as 
in every other, is proverbially fluctu¬ 
ating, it does not matter what we 
suppose it to be when we begin: we 
shall soon see whether there be any 
fixed point about which it oscillates, 
which it has a tendency always to 
approach to, and to remain at. Let 
us suppose, then, that by the effect of 
what Adam Smith calls the higgling 
of the market, 10 yards of cloth, in 
both countries, exchange for 17 yards 
of linen. 

“ The demand for a commodity, that 
is, the quantity of it which can find a 
purchaser, varies, as we have before 
remarked, according to the price. In 
Germany the price of 10 yards of cloth 
is now 17 yards of linen, or whatever 
quantity of money is equivalent in 
Germany to 17 yards of linen. Now, 
that being the price, there is some 
particular number of yards of cloth, 
which will be in demand, or will find 
purchasers, at that price. There is some 
given quantity of cloth, more than 
which could not be disposed of at that 
price; less than which, at that price, 
would not fully satisfy the demand. 
Let us suppose this quantity to be 1000 
times 10 yards. 

“ Let us now turn our attention to 
England. There, the price of 17 yards 
of linen is 10 yards of cloth, or what¬ 
ever quantity of money is equivalent 
in England to 10 yards of cloth. 
There is some particular number 
of yards of linen which, at that 
price, will exactly satisfy the de¬ 
mand, and no more. Let us suppose 
that this number is 1000 times 17 
yards. 

“ As 17 yards of linen are to 10 yards 
of cloth, so are 1000 times 17 yards to 
1000 times 10 yards. At the existing 
exchange value, the linen which Eng¬ 
land requires will exactly pay for the 
quantity of cloth which, on the same 
terms of interchange, Germany re¬ 
quires. The demand on each side is 
precisely sufficient to carry off the 
supply on the other. The conditions 
required by the principle of demand 
and supply are fulfilled, and the two 
commodities will continue to be inter¬ 
changed, as we supposed them to be, 


in the ratio of 17 yards of linen for 10 
yards of cloth. 

“ But our suppositions might have 
been different. Suppose that, at the 
assumed rate of interchange, England 
had been disposed to consume no 
greater quantity of linen than 800 
times 17 yards : it is evident that, at 
the rate supposed, this would not have 
sufficed to pay for the 1000 times 10 
yards of cloth which we have supposed 
Germany to require at the assumed 
value. Germany would be able to 
procure no more than 800 times 10 
yards at that price. To procure the 
remaining 200, which she would have 
no means of doing but by bidding 
higher for them, she would offer more 
than 17 yards of linen in exchange for 
10 yards of cloth : let us suppose her 
to offer 18. At this price, perhaps, 
England would be inclined to purchase 
a greater quantity of linen. She would 
consume, possibly, at that price, 900 
times 18 yards. On the other hand, 
cloth having risen in price, the demand 
of Germany for it would probably have 
diminished. If, instead of 1000 times 
10 yards, she is now contented with 
900 times 10 yards, these will exactly 
pay for the 900 times 18 yards of linen 
which England is willing to take at 
the altered price: the demand on each 
side will again exactly suffice to take 
off the corresponding supply; and 10 
yards for 18 will be the rate at which, 
in both countries, cloth will exchange 
for linen. 

“ The converse of all this would have 
happened, if, instead of 800 times 17 
yards, we had supposed that England, 
at the rate of 10 for 17, would have 
taken 1200 times 17 yards of linen. In 
this case, it is England whose demand 
is not fully supplied; it is England 
who, by bidding for more linen, will 
alter the rate of interchange to her 
own disadvantage ; and 10 yards of 
cloth will fall, in both countries, below 
the value of 17 yards of linen. By this 
fall of cloth, or what is the same thing, 
this rise of linen, the demand of Ger¬ 
many for cloth will increase, and the . 
demand of England for linen will 
diminish, till the rate of interchange 
has so adjusted itself that the cloth 






INTERNATIONAL VALUES. 355 


and the linen will exactly pay for one 
another; and when once this point is 
attained, values will remain without 
further alteration. 

“It may he considered, therefore, as 
established, that when two countries 
trade together in two commodities, the 
exchange value of these commodities 
relatively to each other will adjust 
itself to the inclinations and circum¬ 
stances of the consumers on both sides, 
in such manner that the quantities 
required by each country, of the articles 
which it imports from its neighbour, 
shall be exactly sufficient to pay for 
one another. As the inclinations and 
circumstances of consumers cannot be 
reduced to any rule, so neither can the 
proportions in -which the two commo¬ 
dities will be interchanged. We know 
that the limits within which the varia¬ 
tion is confined, are the ratio between 
their costs of production in the one 
country, and the ratio between their 
costs of production in the other. Ten 
yards of cloth cannot exchange for 
more than 20 yards of linen, nor for 
less than 15. But they may exchange 
for any intermediate number. The 
ratios, therefore, in which the advan¬ 
tage of the trade may be divided be¬ 
tween the two nations, are various. 
The circumstances on which the pro¬ 
portionate share of each country more 
remotely depends, admit only of a very 
general indication. 

“ It is even possible to conceive an 
extreme case, in -which the whole of 
the advantage resulting from the inter¬ 
change would be reaped by one party, 
the other country gaining nothing at 
all. There is no absurdity in the 
hypothesis that, of some given com¬ 
modity, a certain quantity is all that 
is wanted at any price ; and that, when 
that quantity is obtained, no fall in the 
exchange value would induce other 
consumers to come forward, or those 
who are already supplied, to take more. 
Let us suppose that this is the case in 
Germany with cloth. Before her trade 
with England commenced, when 10 
yards of cloth cost her as much labour 
as 20 yards of linen, she nevertheless 
consumed as much cloth as she wanted 
under any circumstances, and, if she 


could obtain it at the rate of 10 yards 
of cloth for 15 of linen, she would not 
consume more. Let this fixed quantity 
be 1000 times 10 yards. At the rate, 
however, of _0 for 20, England would 
want more linen than would be equi¬ 
valent to this quantity of cloth. !She 
would, consequently, offer a higher 
value for linen; or, what is the same 
thing, she would offer her cloth at a 
cheaper rate. But, as by no lowering 
of the value could she prevail on Ger¬ 
many to take a greater quantity of 
cloth, there would be no limit to the 
rise of linen or fall of cloth, until the 
demand of England for linen was re¬ 
duced by the rise of its value, to the 
quantity which 1000 times 10 yards of 
cloth would purchase. It might be, 
that to produce this diminution of the 
demand a less fall would not suffice 
than that which would make 10 yards 
of cloth exchange for 10 of linen. 
Germany would then gain the whole of 
the advantage, and England would be 
exactly as she was before the trade 
commenced. It would be for the in¬ 
terest, however, of Germany herself to 
keep her linen a little beLw the value 
at which it could be produced in Eng¬ 
land, in order to keep herself from 
being supplanted by the home pro¬ 
ducer. England, therefore, would 
always benefit in some degree by the 
existence of the trade, though it might 
be a very trifling one.” 

In this statement, I conceive, is con¬ 
tained the first elementary principle of 
International Values. 1 have, as is 
indispensable in such abstract and hy¬ 
pothetical cases, supposed the circum¬ 
stances to be much less complex than 
they really are : in the first place by 
suppressing the cost of carriage : next, 
by supposing that there are only two 
countries trading together ; and lastly, 
that they trade only in two commodi¬ 
ties. To render the exposition of the 
principle complete, it is necessary to 
restore the various circumstances, thus 
temporarily left out to simplify the 
argument. Those who are accustomed 
to any kind of scientific investigation 
will probably see, without formal proof, 
that the introduction of these circum¬ 
stances cannot alter the theory of the 

A A 2 



BOOK III. CHAPTER XVIII. § 4. 


356 

subject. Trade among any number of 
countries, and in any number of com¬ 
modities, must take place on the same 
essential principles as trade between 
two countries and in two commodities. 
Introducing a greater number of agents 
precisely similar, cannot change the 
law of their action, no more than 
putting additional weights into the 
two scales of a balance alters the law 
of gravitation. It alters nothing but 
the numerical results. For more com¬ 
plete satisfaction, however, we will 
enter into the complex cases with the 
same particularity with which we have 
stated the simpler one. 

§ 3. First, let us introduce the ele¬ 
ment of cost of carriage. The chief 
di Here nee will then be, that the cloffi 
and the linen will no longer exchange 
for each other at precisely the same 
rate in both countries. Linen, having 
to be carried to England, will be dearer 
there by its cost of carriage; and cloth 
will be dearer in Germany by the cost 
of carrying it from England. Linen, 
estimated in cloth, will be dearer in 
England than in Germany, by the cost 
of carriage of both articles. and so will 
cloth in Germany, estimated in linen. 
Suppose that the cost of carriage of 
each is equivalent to one yard of linen ; 
and suppose that, if they could have 
been carried without cost, the terms of 
interchange would have been 10 yards 
of cloth for 17 of linen. It may seem 
at first that each country will pay its 
own cost of carriage ; that is, the car¬ 
riage of the article it imports ; that in 
Germany 10 yards of cloth will ex¬ 
change for 18 of linen, namely, the 
original 17, and 1 to cover the cost of 
carriage of the cloth ; while in Eng¬ 
land, 10 yards of cloth will only pur¬ 
chase 16 of linen, 1 yard being de¬ 
ducted for the cost of carriage of the 
linen. This, however, cannot be af¬ 
firmed with certainty; it will only be 
true, if the linen which the English 
consumers would take at the price of 
10 for 16, exactly pays for the cloth 
which the German consumers would 
take at 10 for 18. The values, what¬ 
ever they are, must establish this equi¬ 
librium. No absolute rule, therefore, 


can be laid down for the division of the 
cost, no more than for the division of 
the advantage : and it does not follow 
that in whatever ratio the one is di¬ 
vided, the other will be divided in the 
same. It is impossible to say, if the 
cost of carriage could be annihilated, 
whether the producing or the importing 
country would be most benefited. This 
would depend on the play of interna¬ 
tional demand. 

Cost of carriage has one effect more. 
But for it, every commodity would (if 
trade be supposed free) be either regu¬ 
larly imported or regularly exported. 
A country would make nothing for 
itself which it did not also make for 
other countries. But in consequence 
of cost of carriage there are many 
things, especially bulky articles, which 
every, or almost every country pro¬ 
duces within itself. After exporting 
the things in which it can employ itself 
most advantageously, and importing 
those in which it is under the greatest 
disadvantage, there are many lying 
between, of which the relative cost of 
production in that and in other countries 
differs so little, that the cost of carriage 
would absorb more than the whoie 
saving in cost of production which 
would be obtained by importing one 
and exporting another. This is the 
case with numerous commodities of 
common consumption; including the 
coarser qualities of many articles of 
food and manufacture, of which the 
finer kinds are the subject of extensive 
international traffic. 

§ 4. Let us now introduce a greater 
number of commodities than the two 
we have hitherto supposed. Let cloth 
and linen, however, be still the articles 
ot which the comparative cost of pro¬ 
duction in England and in Germany 
differs the most; so that if they were 
confined to two commodities, these 
would be the two which it would be 
most their interest to exchange. We 
will now again omit cost of carriage, 
which, having been shown not to affect 
the essentials of the question, does but 
embarrass unnecessarily the statement 
of it. Let us suppose, then, that the 
demand of England for linen is either 





INTERNATIONAL VALUES. 357 


so much greater than that of Germany 
for cloth, or so much more extensible by 
cheapness, that if England had no com¬ 
modity but cloth which Germany would 
take, the demand of England would 
force up the terms of interchange to 10 
yards of cloth for only 16 of linen, so 
that England would gain only the dif¬ 
ference between 15 and 16, Germany 
the difference between 16 and 20. But 
let us now suppose that England has 
also another commodity, say iron, 
which is in demand in Germany, and 
that the quantity of iron which is of 
equal value in England with 10 yards 
of cloth, (let us call this quantity a 
hundred weight) will, if produced in 
Germany, cost as much labour as 18 
yards of linen, so that if offered by Eng¬ 
land for 17, it will undersell the Ger¬ 
man producer. In these circumstances, 
linen will not be forced up to the rate 
of 16 yards for 10 of cloth, but will stop, 
suppose at 17 ; for although at that 
rate of interchange, Germany will not 
take enough cloth to pay for all the 
linen required by England, she will 
take iron for the remainder, and it is 
the same thing to England whether she 
gives a hundred weight of iron or 10 
yards of cloth, both being made at the 
same cost. If we now superadd coals 
or cottons on the side of England, and 
wine, or corn, or timber, on the side of 
Germany ; it will make no difference in 
the principle. The exports of each 
country must exactly pay for the im¬ 
ports ; meaning now the aggregate ex¬ 
ports and imports, not those of par¬ 
ticular commodities taken singly. The 
produce of fifty days English labour, 
whether in cloth, coals, iron, or any 
other exports, will exchange for the 
produce of forty, or fifty, or sixty days 
German labour, in linen, wine, corn, or 
timber, according to the international 
demand. There is some proportion at 
which the demand of the two countries 
for each other’s products will exactly 
correspond; so that the things 
supplied by England to Germany 
will be completely paid for, and 
no more, by those supplied by Ger¬ 
many to England. This accordingly 
will be the ratio in which the pro¬ 
duce of English and the produce of 


German labour will exchange for one 
another. 

If, therefore, it be asked what country 
draAvs to itself the greatest share of the 
advantage of any trade it carries on, 
the answer is, the country for whose 
productions there is in other countries 
the greatest demand, and a demand 
the most susceptible of increase from 
additional cheapness. In so far as the 
productions of any country possess this 
property, the country obtains all foreign 
commodities at less cost. It gets its im¬ 
ports cheaper, the greater the intensity 
of the demand in foreign countries for 
its exports. It also gets its imports 
cheaper, the less the extent and in¬ 
tensity of its own demand for them. 
The market is cheapest to those whose 
demand is small. A country which 
desires few foreign productions, and 
only a limited quantity of them, while 
its own commodities are in great re¬ 
quest in-foreign countries, will obtain 
its limited imports at extremely small 
cost, that is, in exchange for the pro¬ 
duce of a very small quantity of its 
labour and capital. 

Lastly, having introduced more than 
the original two commodities into the 
hypothesis, let us also introduce more 
than the original two countries. After 
the demand of England for the linen of 
Germany has raised the rate of inter¬ 
change to 10 yards of cloth for 16 o r 
linen, suppose a trade opened between 
England and some other country which 
also exports linen. And let us suppose 
that if England had no trade but with 
this third country, the play of interna¬ 
tional demand would enable her to ob¬ 
tain from it, for 10 yards of cloth or its 
equivalent, 17 yards of linen. She 
evidently would not go on buying linen 
from Germany at the former rate : Ger¬ 
many would be undersold, and must 
consent to give 17 yards, like the other 
country. In this case, the circum¬ 
stances of production and of demand in 
the third country are supposed to be in 
themselves more advantageous to Eng¬ 
land than the circumstances of Ger¬ 
many ; but this supposition is not ne¬ 
cessary : we might suppose that if the 
trade with Germany did not exist, Eng¬ 
land would be obliged to give to the 



358 BOOK III. CHAPTER XVIII. § 5. 


other country the same advantageous 
terms which she gives to Germany; 10 
yards of cloth for 16, or even less than 
16, oflinen. Even so, the opening of the 
third country makes a great difference 
in favour of England. There is now a 
double market for English exports, 
while the demand of England for linen 
is only what it was before. This 
necessarily obtains for England more 
advantageous terms of interchange. 
The two countries, requiring much 
more of her produce than was required 
by either alone, must, in order to ob¬ 
tain it, force an increased demand for 
their exports, by offering them at a 
lower value. 

It deserves notice, that this effect in 
favour of England from the opening of 
another market for her exports, will 
equally be produced even though the 
country from which the demand comes 
should have nothing to sell which Eng¬ 
land is willing to take. Suppose that 
the third country, though requiring 
cloth or iron from England, produces 
no linen, nor any other article which 
is in demand there. She however pro¬ 
duces exportable articles, or she would 
have no means of paying for imports : 
her exports, though not suitable to the 
English consumer, can find a market 
somewhere. As we are only supposing 
three countries, we must assume her to 
find this market in Germany, and to 
pay for what she imports from England 
by orders on her German customers. 
Germany, therefore, besides having to 
pay for her own imports, now owes a 
debt to England on account of the 
third country, and the means for both 
purposes must be derived from her ex¬ 
portable produce. She must therefore 
tender that produce to England on 
terms sufficiently favourable to force a 
demand equivalent to this double debt. 
Everything will take place precisely as 
if the third country had bought Ger¬ 
man produce with her own goods, and 
offered that produce to England in ex¬ 
change for hers. There is an increased 
demand for English goods, for which 
German goods have to furnish the pay¬ 
ment ; and this can only be done by 
forcing an increased demand for them 
in England, that is, by lowering their 


value. Thus an increase of demand 
for a country’s exports in any foreign 
country, enables her to obtain more 
cheaply even those imports which she 
procures from other quarters. And 
conversely, an increase of her own de¬ 
mand for any foreign commodity com¬ 
pels her, cceteris paribus , to pay dearer 
for all foreign commodities. 

The law which we have now illus¬ 
trated, may be appropriately named, 
the Equation of International Demand. 
It may be concisely stated as follows. 
The produce of a country exchanges for 
the produce of other countries, at such 
values as are required in order that the 
whole of her exports may exactly pay 
for the whole of her imports. This law 
of International Values is but an ex¬ 
tension of the more general law of 
Value, which we called the Equation of 
Supply and Demand.* We have seen 
that the value of a commodity always 
so adjusts itself as to bring the demand 
to the exact level of the supply. But 
all trade, either between nations or 
individuals, is an interchange of com- 
modifies, in which the things that they 
respectively have to sell, constitute 
also their means of purchase: the supply 
brought by the one constitutes his de¬ 
mand for what is brought by the other. 
So that supply and demand are but 
another expression for reciprocal de¬ 
mand : and to say that value will adjust 
itself so as to equalize demand with 
supply, is in fact to say that it will ad¬ 
just itself so as to equalize the demand 
on one side with the demand on the 
other. 

§ 5. To trace the consequences of 
this law of InternarionalValues through 
their wide ramifications, would occupy 
more space than can be here devoted, 
to such a purpose. But there is one 
of its applications which I will notice, 
as being in itself not unimportant, as 
bearing on the question which will 
occupy us in the next chapter, and 
especially as conducing to the more 
full and clear understanding of the law 
itself. 

We have seen that the value at which 
a country purchases a foreign comino- 
* Supra, book iii. ch. ii. § 4. 




INTERNATIONAL VALUES. 


dity, does not conform to the cost of 
production in the country from which 
the commodity comes. Suppose now a 
change in that cost of production ; an 
improvement, for example, in the pro¬ 
cess of manufacture. Will the benefit of 
the improvement be fully participated 
in by other countries ? AYill the com¬ 
modity be sold as much cheaper to 
foreigners, as it is produced cheaper at 
home? This question, and the consi¬ 
derations which must be entered into 
in order to resolve it, are well adapted 
to try the worth of the theory. 

Let us first suppose, that the im¬ 
provement is of a nature to create a new 
branch of export: to make foreigners 
resort to the country for a commodity 
which they had previously produced at 
home. On this supposition, the foreign 
demand for the productions of the 
country is increased ; which necessarily 
alters the international values to its 
advantage, and to the disadvantage of 
foreign countries, who, therefore, though 
they participate in the benefit of the 
new product, must purchase that benefit 
by paying for all the other productions 
of the country at a dearer rate than be¬ 
fore. How much dearer, will depend 
on the degree necessary for re-establish¬ 
ing, under these new conditions, the 
Equation of International Demand. 
These consequences follow in a very 
obvious manner from the law of inter¬ 
national values, and I shall not occupy 
space in illustrating them, but shall 
pass to the more frequent case, of an 
improvement which does not create a 
new article of export, but lowers the 
cost of production of something which 
the country already exported. 

It being advantageous, in discussions 
of this complicated nature, to employ 
definite numerical amounts, we shall 
return to our original example. Ten 
yards of cloth, if produced in Germany, 
would require the same amount of 
labour and capital as twenty yards of 
linen ; but, by the play of international 
demand, they can be obtained from 
England for seventeen. Suppose now, 
that by a mechanical improvement 
made in Germany, and not capable of 
being transferred to England, the same 
quantity of labour and capital which 


359 

produced twenty yards of linen, is 
enabled to produce thirty. Linen falls 
one-third in value in the German mar¬ 
ket, as compared with other commodi¬ 
ties produced in Germany. AYill it 
also fall one-third as compared with 
English cloth, thus giving to England, 
in common with Germany, the full 
benefit of the improvement ? Or (ought 
we not rather to say), since the cost 
to England of obtaining linen was not 
regulated by the cost to Germany of 
producing it, and since England, 
accordingly, did not get the entire 
benefit even of the twenty yards which 
Germany could have given for ten 
yards of cloth, but only obtained seven¬ 
teen—why should she now obtain more, 
merely because this theoretical limit is 
removed ten degrees further otf ? 

It is evident that in the outset, the 
improvement will lower the value of 
linen in Germany, in relation to all 
other commodities in the German mar¬ 
ket, including, among the rest, even 
the imported commodity, cloth. If 10 
yards of cloth previously exchanged for 
17 yards of linen, they will now ex¬ 
change for half as much more, or 25£ 
yards. But whether they will continue 
to do so, will depend on the effect which 
this increased cheapness of linen pro¬ 
duces on the international demand. 
The demand for linen in England could 
scarcely fail to be increased. But it 
might be increased either in proportion 
to the cheapness, or in a greater pro¬ 
portion than the cheapness, or in a less 
proportion. 

If the demand was increased in the 
same proportion with the cheapness, 
England would take as many times 254 
yards of linen, as the number of times 
17 yards which she took previously. 
She would expend in linen exactly as 
much of cloth, or of the equivalents of 
cloth, as much in short of the collective 
income of her people, as she did before. 
Germany, on her part, would probably 
require, at that rate of interchange, the 
same quantity of cloth as before, be¬ 
cause it would in reality cost her ex¬ 
actly as much ; 25| yards of linen being 
now of the same value in her market, 
as 17 yards were before. In this case, 
therefore, 10 yards of cloth for 254 





3GO BOOK III. CHAPTER XVIII. § 6. 


linen is the rate of interchange which 
under these new conditions would re¬ 
store the equation of international de¬ 
mand ; and England would obtain linen 
one-third cheaper than before, being 
the same advantage as was obtained by 
Germany. 

It might happen, however, that this 
great cheapening of linen would in¬ 
crease the demand for it in England in 
a greater ratio than the increase of 
cheapness; and that if she before 
wanted 1000 times 17 yards, she would 
now require more than 1000 times 25| 
yards to satisfy her demand. If so, 
the equation of international demand 
cannot establish itself at that rate of 
interchange ; to pay for the linen Eng¬ 
land must offer cloth on more advan¬ 
tageous terms: say, for example, 10 
yards for 21 of linen ; so that England 
will not have the full benefit of the 
improvement in the production of linen, 
while Germany, in addition to that 
benefit, will also pay less for cloth. 
But again, it is possible that England 
might not desire to increase her con- 
sumption of linen in even so great a 
proportion as that of the increased 
cheapness; she might not desire so 
great a quantity as 1000 times 25i 
yards: and in that case Germany must 
force a demand, by offering more than 
25^ yards of linen for 10 of cloth; 
linen will be cheapened in England in 
a still greater degree than in Germany; 
while Germany will obtain cloth on 
more unfavourable terms, and at a 
higher exchange value than before. 

After what has already been said, it 
is not necessary to particularize the 
manner in which these results might 
be modified by introducing into the 
hypothesis other countries and other 
commodities. There is a further cir¬ 
cumstance by which they may also be 
modified. In the case supposed, the 
consumers of Germany have had a part 
of their incomes set at liberty by the 
increased cheapness of linen, which 
they may indeed expend in increasing 
their consumption of that article, but 
which they may, likewise, expend in 
other articles, and among others, in 
cloth or other imported commodities. 
This would be an additional element in 


the international demand, and would 
modify more or less the terms of inter¬ 
change. 

Of the three possible varieties in the 
influence of cheapness on demand, 
which is the more probable—that the 
demand would be increased more than 
the cheapness, as much as the cheap¬ 
ness, or less than the cheapness? This 
depends on the nature of the particular 
commodity, and on the tastes of pur¬ 
chasers. When the commodity is one 
in general request, and the fall of its 
price brings it within the reach of a 
much larger class of incomes than be- 
fore, the demand is often increased in 
a greater ratio than the fall of price, 
and a larger sum of money is on the 
whole expended in the article. Such 
was the case with coffee, when its price 
was lowered by successive reductions 
of taxation ; and such would probably 
be the case with sugar, wine, and a 
large class of commodities which, 
though not necessaries, are largely con¬ 
sumed, and in which many consumers 
indulge when the articles are cheap 
and economize when they are dear. 
But it more frequently happens that 
when a commodity falls in price, less 
money ^s spent in it than before : a 
greater quantity is consumed, but not 
so great a value. The consumer who 
saves money by the cheapness of the 
article, will be likely to expend part of 
the saving in increasing his consump¬ 
tion of other things: and unless the 
low price attracts a large class of new 
purchasers who were either not consu¬ 
mers of the article at all, or only in 
small quantity and occasionally, a less 
aggregate sum will be expended on it. 
Speaking generally, therefore, the third 
of our three cases is the most probable : 
and an improvement in an exportable 
article is likely to be as beneficial (if not 
more beneficial) to foreign countries, 
as to the country where the article is 
produced. 

§ 6. Thus far had the theory of in¬ 
ternational values been carried" in the 
first and second editions of this work. 
But intelligent criticisms (chiefly those 
of my friend Mr. William Thornton) 
and subsequent further investigation, 



INTERNATIONAL VALUES. 361 


have shown that the doctrine stated in 
the preceding pages, though correct as 
far as it goes, is not yet the complete 
theory of the subject matter. 

It has been shown that the exports 
and imports between the two countries 
(or, if we suppose more than two, be¬ 
tween each country and the world) 
inust in the aggregate pay for each 
other, and must therefore be exchanged 
for one another at such values as will 
be compatible with the equation of in¬ 
ternational demand. That this, how¬ 
ever, does not furnish the complete law 
of the phenomenon, appears from the 
following consideration: that several 
different rates of international value 
may all equally fulfil the conditions of 
this law. 

The supposition was, that England 
could produce 10 yards of cloth with 
the same labour as 15 of linen, and 
Germany with the same labour as 20 
of linen ; that a trade was opened be¬ 
tween the two countries ; that England 
thenceforth confined her production to 
cloth, and Germany to linen; and, that 
if 10 yards of cloth should thenceforth 
exchange for 17 of linen, England and 
Germany would exactly supply each 
other’s demand: that, for instance, if 
England wanted at that price 17,000 
yards of linen, Germany would want 
exactly the 10,000 yards of cloth, 
which, at that price, England would 
be required to give for the linen. 
Linder these suppositions it appeared, 
that 10 cloth for 17 linen, would be, in 
point of fact, the international values. 

But it is quite possible that some 
other rate, such as 10 cloth for 18 linen, 
might also fulfil the conditions of the 
equation of international demand. Sup¬ 
pose that at this last rate, England 
would want more linen than at the 
rate of 10 for 17, but not in the ratio of 
the cheapness ; that she would not want 
the 18,000 which she could now buy 
with 10,000 yards of cloth, but "would 
be content with 17,500, for which she 
would pay (at the new rate of 10 for 
18) 9722 yards of cloth. Germany, 
again, having to pay dearer for cloth 
than when it could be bought at 10 
for 17, would probably reduce her con¬ 
sumption to an amount below 10,000 


yards, perhaps to the very same num¬ 
ber, 9722, Under these conditions the 
Equation of International Demand 
would still exist. Thus, the rate of 
10 for 17, and that of 10 for 18, would 
equally satisfy the Equation of De¬ 
mand : and many other rates of inter¬ 
change might satisfy it in like manner. 
It is conceivable that the conditions 
ntight be equally satisfied by every nu¬ 
merical rate which could be supposed. 
There is still, therefore, a portion of 
indeterminateness in the rate at which 
the international values would adjust 
themselves, showing that the whole 
of the influencing circumstances can¬ 
not yet have been taken into the 
account. 

§ 7. It will be found that to supply 
this deficiency, we must take into con¬ 
sideration not only, as we have already 
done, the quantities demanded in each 
country, of the imported commodities ; 
but also the extent of the means of 
supplying that demand, which are set 
at liberty in each country by the 
change in the direction of its industry. 

To illustrate this point it will be 
necessary to choose more convenient 
numbers than those which we have 
hitherto employed. Let it be supposed 
that in England 100 yards of cloth, 
previously to the trade, exchanged for 
100 of linen, but that in Germany 100 
of cloth exchanged for 200 of linen. 
When the trade was opened, England 
would supply cloth to Germany, Ger¬ 
many linen to England, at an exchange 
value which would depend partly on 
the element already discussed, viz. the 
comparative degree in which, in the 
two countries, increased cheapness 
operates in increasing the demand; 
and partly on some other element not 
yet taken into account. In order to 
isolate this unknown element, it will 
be necessary to make some definite and 
invariable supposition in regard to the 
known element. Let us therefore as¬ 
sume, that the influence of cheapness 
on demand conforms to some simple 
law, common to both countries and 
to both commodities. As the simplest 
and most convenient, let us suppose 
that in both countries any given, in 




BOOK III. CHAPTER XVIII. § 7. 


362 

crease of cheapness produces an ex¬ 
actly proportional increase of consump¬ 
tion : or, in other words, that the value 
expended in the commodity, the cost 
incmred for the sake of obtaining it, 
is always the same, whether that cost 
affords a greater or a smaller quantity 
of the commodity. 

Let us now suppose that England, 
previously to the trade, required 4 a 
million of yards of linen, which were 
worth, at the English cost of produc¬ 
tion, a million yards of cloth. By 
turning all the labour and capital with 
which that linen was produced, to the 
production of cloth, she would produce 
for exportation a million yards of 
cloth. Suppose that this is the ex¬ 
act quantity which Germany is accus¬ 
tomed to consume. England can dis¬ 
pose of all this cloth in Germany at 
the German price ; she must consent 
indeed to take a little less until she has 
driven the German producer from the 
market, but as soon as this is effected, 
she can sell her million of cloth for two 
millions of linen ; being the quantity 
that the German clothiers are enabled 
to make, by transferring their whole 
labour and capital from cloth to linen. 
Thus England would gain the whole 
benefit of the trade, and Germany 
nothing. This would be perfectly con¬ 
sistent "with the equation of interna¬ 
tional demand: since England (ac¬ 
cording to the hypothesis in the pre¬ 
ceding paragraph) now requires two 
millions of linen (being able to get 
them at the same cost at which she 
previously obtained only one), while 
the prices in Germany not being 
altered, Germany requires as before 
exactly a million of cloth, and can ob¬ 
tain it by employing the labour and 
capital set at liberty from the pro¬ 
duction of cloth, in producing the 
two millions of linen required by 
England. 

Thus far, we have supposed that the 
additional cloth which England could 
make, by transferring to cloth the 
whole of the capital previously em¬ 
ployed in making linen, was exactly 
sufficient to supply the whole of Ger¬ 
many’s existing demand. But suppose 
next that it is more than sufficient. 


Suppose that while England could 
make with her liberated capital a 
million yards of cloth for exportation, 
the cloth which Germany had hereto¬ 
fore required was 800,000 yards only, 
equivalent at the German cost of pro¬ 
duction to 1,600,000 yards of linen. 
England therefore could not dispose 
of a whole million of cloth in Germany 
at the German prices. Yet she wants, 
whether cheap or dear (by our suppo¬ 
sition), as much linen as can be bought 
for a million of cloth : and since this 
can only be obtained from Germany, or 
by the more expensive process of 
production at home, the holders of the 
million of cloth will be forced by each 
other’s competition to offer it to Ger¬ 
many on any terms (short of the 
English cost of production) which will 
induce Germany to take the whole. 
What terms these would be, the sup¬ 
position we have made enables us 
exactly to define. The 800,000 yards 
of cloth which Germany consumed, 
cost her the equivalent of 1,600,000 
linen, and that invariable cost is what 
she is willing to expend in cloth, 
whether the quantity it obtains for 
her be more or less. England, there¬ 
fore, to induce Germany to take a mil¬ 
lion of cloth, must offer it for 1,600,000 
of linen. The international values 
will thus be 100 cloth for 160 linen, 
intermediate between the ratio of the 
costs of production in England and 
that of the costs of production in 
Germany : and the two countries will 
divide the benefit of the trade, England 
gaining in the aggregate 600,000 
yards of linen, and Germany being 
richer by 200,000 additional yards of 
cloth. 

Let us now stretch the last supposi¬ 
tion still farther, and suppose that the 
cloth previously consumed by Germany 
was not only less than the million 
yards which England is enabled to 
furnish by discontinuing her production 
of linen, but less in the full proportion 
of England’s advantage in the produc¬ 
tion, that is, that Germany only re¬ 
quired half a million. In this case, 
by ceasing altogether to produce cloth, 
Germany can add a million, but a 
million only, to her production of linen, 





INTERNATIONAL VALUES. 363 


and this million being the equivalent 
of what the half million previously 
cost her, is all that she can be induced 
by any degree of cheapness to expend 
in cloth. England will be forced by 
her own competition to give a whole 
million of cloth for this million of linen, 
just as she was forced in the preceding 
case to give it for 1,G00,0U0. But 
England could have produced at the 
same cost a million yards of linen for 
herself. England therefore derives, in 
this case, no advantage from the inter¬ 
national trade. Germany gains the 
whole; obtaining a million of cloth 
instead of half a million, at what the 
half million previously cost her. Ger¬ 
many, in short, is, in this third case, 
exactly in the same situation as Eng¬ 
land was in the first case ; which may 
easily be verified by reversing the 
figures. 

As the general result of the three 
cases, it maybe laid down as a theorem, 
that under the supposition we have 
made of a demand exactly in propor¬ 
tion to the cheapness, the law of 
international value will be as fol¬ 
lows :— 

The whole of the cloth which Eng¬ 
land can make with the capital pre 
viously devoted to linen, will exchange 
for the whole of the linen which Ger¬ 
many can make with the capital pre¬ 
viously devoted to cloth. 

Or, still more generally, 

The whole of the commodities which 
the two countries can respectively make 
for exportation, with the labour and 
capital thrown out of employment by 
importation, will exchange against one 
aD other. 

This law, and the three different 
possibilities arising from it in respect 
to the division of the advantage, may 
be conveniently generalized by means 
of algebraical symbols, as follows: — 

Let the quantity of cloth which 
England can make with the labour and 
capital withdrawn from the production 
of linen, be = n. 

Let the cloth previously required 
by Germany (at the German cost of 
production) be = m. 

Then n of cloth will always ex¬ 
change for exactly 2m of linen. 


Consequently if n = m, the whole 
advantage will be on the side of Eng¬ 
land. 

If n = 2m, the whole advantage will 
be on the side of Germany. 

If n be gi eater than m, but less than 
2m, the two countries will share the 
advantage; England getting 2m of 
linen where she before got only n; 
Germany getting n of cloth where she 
before got only m. 

It is almost superfluous to observe 
that the figure 2 stands where it does, 
only because it is the figure which ex¬ 
presses the advantage of Germany over 
England in linen as estimated in cloth, 
and (what is the same thing) of Eng¬ 
land over Germany in cloth as esti¬ 
mated in linen. If we had supposed 
that in Germany, before the trade, 100 
of cloth exchanged for 1000 instead of 
200 of linen, then n (after the trade 
commenced) would have exchanged for 
10m instead of 2m. If instead of 1000 
or 200 we had supposed only 150, n 


would have exchanged for only — m. 

u 


If (in fine) the cost value of cloth (as 
estimated in linen) in Germany, ex¬ 
ceeds the cost value similarly estimated 
in England, in the ratio of p to q, then 
will n, after the opening of the trade, 


exchange for ^m.* 
2 


§ 8. We have now arrived at what 
seems a law of International Values, of 
great simplicity and generality. But 
we have done so by setting out from a 


* It may be asked, why we have supposed 
the number n to have as its extreme limits, 

m and 2m (or-^m)? why may not n be less 
<? 

than m, or greater than 2m ; and if so, what 
will be the result ? 

This we shall now examine, and when we 
do so it will appear that n is always, practi¬ 
cally speaking, confined within these limits. 

Suppose for example that n is less than m; 
or, reverting to our former figures, that the 
million yards of cloth, which England can 
make, will not satisfy the whole of Germany’s 
pre-existing demand; that demand being (let 
us suppose) for 1,200,000 yards. It would 
then, at first sight, appear that England 
would supply Germany with cloth up to the 
extent of a million ; that Germany would 
continue to supply herself with the remain¬ 
ing 200,000 by home production; that this 




364 BOOK in. CHAPTER XVIII. § 8. 


purely arbitrary hypothesis respecting 
the relation between demand and 
cheapness. We have assumed their 
relation to be fixed, though it is essen¬ 
tially variable. We have supposed 
that every increase of cheapness pro¬ 
duces an exactly proportional extension 
of demand ; in other words, that the 
same invariable value is laid out in a 
commodity whether it be cheap or dear; 
and the law which we have investi¬ 
gated holds good only on this hypo¬ 
thesis, or some other practically equi¬ 
valent to it. Let us now, therefore, 
combine the two variable elements of 
the question, the variations of each 
of which we have considered sepa¬ 
rately. Let us suppose the relation 
between demand and cheapness to 
var} 7 , and to become such as would 
prevent the rule of interchange laid 
down in the last theorem from satis¬ 
fying the conditions of the Equation 
of International Demand. Let it be 
supposed, for instance, that the demand 

portion of the supply would regulate the price 
of the whole; that England therefore would 
be able permanently to sell her million of 
cloth at the German cost of production (viz. 
for two millions of linen) and would gain the 
whole advantage of the trade, Germany being 
no better off than before. 

That such, however, would not be the 
practical result, will soon be evident. The 
residuary demand of Germany for 200,000 
yards of cloth furnishes a resource to Eng¬ 
land for purposes of foreign trade of which it 
is still her interest to avail herself; and 
though she has no more labour and capital 
Which she can withdraw from linen for the, 
production of this extra quantity of cloth, 
there must be some other commodities in 
which Germany has a relative advantage 
over her (thouah perhaps not go great as in 
linen): these she will now import, instead of 
producing, and the labour and capital for¬ 
merly employed in px-oduciug them will be 
transferred to cloth, until the required 
amount is made up. If this transfer just 
makes up the 200,000 and no more, this aug¬ 
mented n will now be equal to m ; England 
will sell the whole 1,200,000 at the German 
values; and will still gain the whole advan¬ 
tage of the trade. But if the transfer makes 
up more than the 200,000, England will have 
more cloth than 1,200,000 yards to offer; n will 
become greater than m, and England must 
part w ith enough of the advantage to induce 
Germany to take the surplus. Thus, the case 
which seemed at first sight to be beyond the 
limits, is ti'anstormed practically into a case 
either coinciding with one of the limits, or 
between them. And so with every other 
case which can be supposed. 


of England for linen is exactly propor¬ 
tional to the cheapness, but that of 
Germany for cloth, not proportional. 
To revert to the second of our three 
cases, the case in which England by 
discontinuing the production of linen 
could produce for exportation a million 
yards of cloth, and Germany by ceas¬ 
ing to produce cloth could produce an 
additional 1,600,000 yards of linen. 
If the one of these quantities exactly 
exchanged for the other, the demand 
of England would on our present sup¬ 
position be exactly satisfied, for she 
requires all the linen which can he got 
for a million yards of cloth: hut Ger¬ 
many perhaps, though she required 
800,000 cloth at a cost equivalent to 
1,600,000 linen, yet when she can get 
a million of cloth at the same cost, may 
not require the whole million ; or may 
require more than a million. First, 
let her not require so much ; hut only 
as much as she can now buy for 
1,500,000 linen. England will still 
oiler a million for these 1,500,000; 
hut even this may not induce Germany 
to take so much as a million; and if 
England continues to expend exactly 
the same aggregate cost on linen 
whatever he the price, she will have to 
submit to take for her million of cloth 
any quantity of linen (not less than a 
million) which may he requisite to in¬ 
duce Geimany to take a million of 
cloth. Suppose this to he 1,400,000 
yards. England has now reaped from 
the trade a gain not of 600,000 but 
only of400,000 yards ; while Germany, 
besides having obtained an extra 
200,000 yards of cloth, has obtained it 
with only seven-eighths of the labour 
and capital which she previously ex¬ 
pended in supplying herself with cloth, 
and may expend the remainder in in¬ 
creasing her own consumption of linen, 
or of any other commodity. 

Suppose on the contrary that Ger¬ 
many, at the rate of a million cloth 
for 1,600,000 linen, requires more than 
a million yards of cloth. England 
having only a million which she can 
give without trenching upon the quan¬ 
tity she previously reserved for herself, 
Germany must hid for the extra cloth 
at a higher rate than 160 for 100, 





INTERNATIONAL VALUES. 


until she reaches a rate (say 170 for 
100) which will either bring down her 
own demand for cloth to the limit of a 
million, or else tempt England to part 
with some of the cloth she previously 
consumed at home. 

Let us next suppose that the pro¬ 
portionality of demand to cheapness, 
instead of holding good in one country 
but not in the other, does not hold 
good in either country, and that the 
deviation is of the same kind in both; 
that, for instance, neither of the two 
increases its demand in a degree equi¬ 
valent to the increase of cheapness. 
On this supposition, at the rate of one 
million cloth for 1,600,000 linen, Eng¬ 
land will not want so much as 1,600,000 
linen, nor Germany so much as a 
million cloth : and if they fall short of 
that amount in exactly the same 
degree; if England only wants linen 
to the amount of nine-tenths of 
1,600,000 (1,440,000), and Germany 
only nine hundred thousand of cloth, 
the interchange will continue to take 
place at the same r*te. And so if 
England wants a tenth more than 
1,600,000, and Germany a tenth more 
than a million. This coincidence 
(which, it is to be observed, supposes 
demand to extend cheapness in a cor¬ 
responding, but not in an equal de¬ 
gree*) evidently could not exist unless 
by mere accident : and in any other 
case, the equation of international de¬ 
mand would require a different adjust¬ 
ment of international values. 

The only general law, then, which 
can be laid down, is this. The values 
at which a country exchanges its pro¬ 
duce with foreign countries depend on 
two things: first, on the amount and 
extensibility of their demand for its 
commodities, compared with its de¬ 
mand for theirs ; and secondly, on the 
capital which it has to spare, from the 
production of domestic commodities 

* The increase of demand from 800,000 to 
900,000, and that from a million to 1,440,000, 
are neither equal in themselves, nor bear an 
equal proport ion to the increase of cheapness. 
Germany’s demand for cloth has increased 
one-eighth, while the cheapness is increased 
one-fourth. England’s demand for linen is 
increased 41 per cent, while the cheapness is 
increased 60 per cent. 


365 

for its own consumption. The more 
the foreign demand for its commodities 
exceeds its demand for foreign commo¬ 
dities, and the less capital it can spare 
to produce for foreign markets, com¬ 
pared with what foreigners spare to 
produce for its markets, the more fa¬ 
vourable to it will be the terms of 
interchange: that is, the more it 
will obtain of foreign commodities 
in return for a given quantity of its 
own. 

But these two influencing circum¬ 
stances are in reality reducible to one : 
for the capital which a country has to 
spare from the production of domestic 
commodities for its own use, is in pro¬ 
portion to its own demand for foreign 
commodities: whatever proportion of 
its collective income it expends in pur¬ 
chases from abroad, that same propor¬ 
tion of its capital is left without a home 
market for its productions. The new 
element, therefore, which for the sake 
of scientific correctness we have intro¬ 
duced into the theory of international 
values, does not seem to make any 
very material ditference in the practical 
result. It still appears, that the coun¬ 
tries which carry on their foreign trade 
on the most advantageous terms, are 
those whose commodities are most in 
demand by foreign countries, and which 
have themselves the least demand for 
foreign commodities. From which, 
among other consequences, it follows, 
that the richest countries, cceteris pari¬ 
bus, gain the least by a given amount 
of foreign commerce : since, having a 
greater demand for commodities gene¬ 
rally, they are likely to have a greater 
demand for foreign commodities, and 
thus modify the terms of interchange 
to their own disadvantage. Their ag¬ 
gregate gains by foreign trade, doubt¬ 
less, are generally greater than those 
of poorer countries, since they carry 
on a greater amount of such trade, and 
gain the benefit of cheapness on a 
larger consumption : but their gain is 
less on each individual article con¬ 
sumed. 

§ 9. V r e now pass to another essen¬ 
tial part of the theory of the subject. 
There are two senses ir. which a coun- 




BOOK III. CHAPTER XVIII. § 9. 


366 

try obtains commodities cheaper by 
foreign trade; in the sense of Value, 
and in tbe sense of Cost.- It gets them 
cheaper in the first sense, by their 
falling in value relatively to other 
things: the same quantity of them 
exchanging, in the country, for a 
smaller quantity than before of the 
other produce of the country. To re¬ 
vert to our original figures ; in England, 
all consumers of linen obtained, after 
the trade was opened, 17 or some 
greater number of yards for the same 
quantity of all other things for which 
they before obtained only 15. The 
degree of cheapness, in this sense of 
the term, depends on the laws of Inter¬ 
national Demand, so copiously illus¬ 
trated in the preceding sections. But 
in the other sense, that of Cost, a 
country gets a commodity cheaper, 
wdien it obtains a greater quantity of 
the commodity with the same expen¬ 
diture of labour and capital. In this 
sense of the term, cheapness in a great 
measure depends upon a cause of a 
different nature : a country gets its im¬ 
ports cheaper, in proportion to the gene¬ 
ral productiveness of its domestic in¬ 
dustry ; to the general efficiency of its 
labour. The labour of one country 
may be, as a -whole, much more effi¬ 
cient than that of another : all or most 
of the commodities capable of being 
produced in both, may be produced in 
one at less absolute cost than in the 
other; which, as we have seen, will 
not necessarily prevent the two coun¬ 
tries from exchanging commodities. 
The things which the more favoured 
country will import from others, are 
of course those in which it is least 
superior; but by importing them it 
acquires, even in those commodities, 
the same advantage which it possesses 
in the articles it gives in exchange for 
them. Thus the countries which ob¬ 
tain their own productions at least 
cost, also get their imports at least 
cost. 

This will be made still more obvious 
if we suppose two competing countries. 
England sends cloth to Germany, and 
gives 10 yards of it for 17 yards of 
linen, or for something else which in 
Germany is the equivalent of those 


17 yards. - Another country, as for ex¬ 
ample France, does the same. The one 
giving 10 yards of cloth for a certain 
quantity of German commodities, so 
must the other: if, therefore, in Eng¬ 
land, these 10 yards are produced by 
only half as much labour as that by 
which they are produced in France, 
the linen or other commodities of Ger¬ 
many will cost to England only half 
the amount of labour which they will 
cost to France. England would thus 
obtain her imports at less cost than 
France, in the ratio of the greater effi¬ 
ciency of her labour in the production 
of cloth : which might be taken, in 
the case supposed, as an approximate 
estimate of the efficiency of her labour 
generally; since France, as well as 
England, by selecting cloth as her 
article of export, would have shown 
that with her also it was the commo¬ 
dity in which labour was relatively the 
most efficient. It follows, therefore, 
that every country gets its imports at 
less cost, in proportion to the general 
efficiency of its labour. 

This proposition was first clearly 
seen ancl expounded by Mr. Senior,* 
but only as applicable to the importa¬ 
tion of the precious metals. I think it 
important to point out that the proposi¬ 
tion holds equally true of all other im¬ 
ported commodities; and further, that 
it is only a portion of the truth. For, 
in the case supposed, the cost to Eng¬ 
land of the linen which she pays for 
with ten yards of cloth, does not depend 
solely upon the cost to herself of ten 
yards of cloth, but partly also upon 
how many yards of linen she obtains 
in exchange for them. What her im¬ 
ports cost to her is a function of two 
variables; the quantity of her own 
commodities which she gives for them, 
and the cost of those commodities. Of 
these, the last alone depends on the 
efficiency of her labour: the first de¬ 
pends on the law of international 
values; that is, on the intensity and 
extensibility of the foreign demand for 
her commodities, compared with her 
demand for foreign commodities. 

In the case just now supposed, of 

* Three Lectures on the Cost of Obtaining 
Money. 



MONEY AS AN IMPORTED COMMODITY. 


a competition between England and 
France, the state of international 
values affected both competitors alike, 
since they were supposed to trade with 
the same country, and to export and 
import the same commodities. The 
difference, therefore, in what their im¬ 
ports cost them, depended solely on 
the other cause, the unequal efficiency 
of their labour. They gave the same 
quantities; the difference could only 
be in the cost of production. But if 
England traded to Germany with cloth, 
and France with iron, the comparative 
demand in Germany for those two com¬ 
modities would bear a share in deter- 


367 

mining the comparative cost, in labour 
and capital, with which England and 
France would obtain German products. 
If iron were more in demand in Ger¬ 
many than cloth, France would recover, 
through that channel, part of her dis¬ 
advantage ; if less, her disadvantage 
would be increased. The efficiency, 
therefore, of a country’s labour, is not 
the only thing which determines even 
the cost at which that country obtains 
imported commodities—while it has no 
share whatever in determining either 
their exchange value , or, as we shall 
presently see, their price. 


CHAPTER XIX. 


OP MONEY, CONSIDERED AS 

§ 1. The degree of progress which 
we have now made in the theory of 
Foreign Trade, puts it in our power to 
supply what was previously deficient 
in our view of the theory of Money; 
and this, when completed, will in its 
turn enable us to conclude the subject 
of Foreign Trade. 

Money, or the material of which it 
is composed, is, in Great Britain, and 
in most other countries, a foreign com¬ 
modity. Its value and distribution 
must therefore be regulated, not by 
the law of value which obtains in ad¬ 
jacent places, but by that which is ap¬ 
plicable to imported commodities—the 
law of International Values. 

In the discussion into which we are 
now about to enter, I shall use the 
terms Money and the Precious Metals 
indiscriminately. This may be done 
without leading to any error; it having 
been shown that the value of money, 
when it consists of the precious metals, 
or of a paper currency convertible into 
them on demand, is entirely governed 
by the value of the metals themselves: ■ 
from which it never permanently differs, 
except by the expense of coinage when 
this is paid by the individual and not by 
the state. 


AN IMPORTED COMMODITY. 

Money is brought into a country in 
two different ways. It is imported 
(chiefly in the form of bullion) like any 
other merchandize, as being an advan¬ 
tageous article of commerce. It is also 
imported in its other character of a 
medium of exchange, to pay some debt 
clue to the country, either for goods ex¬ 
ported or on any other account. There 
are other ways in which it may be in¬ 
troduced casually; these are the two 
in which it is received in the ordinary 
course of business, and which deter¬ 
mine its value. The existence of these 
two distinct modes mi which money 
flows into a country, while other com¬ 
modities are habitually introduced only 
in the first of these modes, occasions 
somewhat more of complexity and ob¬ 
scurity than exists in the case of other 
commodities, and for this reason only 
is any special and minute exposition 
necessary. 

§ 2. In so far as the precious metals 
are imported in the ordinary way of 
commerce, their value must depend on 
the same causes, and conform to the 
same laws, as the value of any other 
foreign production. It is in this mode 
chiefly that gold and silver diffuse them- 





BOOK III. CHAPTER XIX. § 2. 


3G8 

selves from llie mining countries into 
all other parts of the commercial world. 
They are the staple commodities of 
those countries, or at least are among 
their great articles of regular export; 
and are shipped on speculation, in the 
same manner as other exportable com¬ 
modities. The quantity, therefore, 
which a country (say England) will 
give of its own produce, for a certain 
quantity of bullion, will depend, if we 
suppose only two countries and two 
commodities, upon the demand in Eng¬ 
land for bullion, compared with the 
demand in the mining country (which 
we will call Brazil) for what England 
has to give. They must exchange in 
such proportions as will leave no un¬ 
satisfied demand on either side, to aHer 
values by its competition. The bullion 
required by England must exactly pay 
for the cottons or other English com¬ 
modities required by Brazil. If, how¬ 
ever, we substitute for this simplicity 
the degree of complication which really 
exists, the equation of international 
demand must be established not be¬ 
tween the bullion wanted in England 
and the cottons or broadcloth wanted 
in Brazil, but between the whole of the 
imports of England and the whole of 
her exports. The demand in foreign 
countries for English products, must 
be brought into equilibrium with the 
demand in England for the products 
of foreign countries; and all foreign 
commodities, bullion among the rest, 
must be exchanged against English 
products in such proportions, as will, 
by the effect they produce on the de¬ 
mand, establish this equilibrium. 

There is nothing in the peculiar 
nature or uses of the precious metals, 
which should make them an exception 
to the general principles of demand. 
So far as they are wanted for purposes 
of luxury or the arts, the demand in¬ 
creases •with the cheapness, in the 
same irregular way as the demand for 
any other commodity. So far as they 
are required for money, the demand 
increases with the cheapness in a per¬ 
fectly regular way, the quantity needed 
being always in inverse proportion to 
the value. This is the only real dif¬ 
ference, in respect to demand, between 


money and other things; and for the 
present purpose it is a difference alto¬ 
gether immaterial. 

Money, then, if imported solely as a 
merchandize, will, like other imported 
commodities, be of lowest value in the 
countries for whose exports there is the 
greatest foreign demand, and which 
have themselves the least demand for 
foreign commodities. To these tw 7 o cir¬ 
cumstances it is however necessary to 
add two others, which produce their 
effect through cost of carriage. The 
cost of obtaining bullion is compounded 
of two elements; the goods given to pur¬ 
chase it, and the expense of transport: 
ot which last, the bullion countries will 
bear a part (though an uncertain 
part) in the adjustment of international 
values. The expense of transport is 
partly that of carrying the goods to the 
bullion countries, and partly that of 
bringing back the bullion: both these 
items are influenced by the distance 
from the mines ; and the former is also 
much affected by the bulkiness of the 
goods. Countries wdiose exportable 
produce consists of the finer manufac¬ 
tures, obtain bullion, as well as all 
other foreign articles, cceteris paribus, 
at less expense than countries which 
export nothing but bulky raw produce. 

To be quite accurate, therefore, we 
must say—The countries whose ex¬ 
portable productions are most in de¬ 
mand abroad, and contain greatest 
value in smallest bulk, which are 
nearest to the mines, and wdiich have 
least demand for foreign productions, 
are those in which money will be of 
lowest value, or in other w r ords, in 
which prices will habitually range the 
highest. If w r e are speaking not of the 
value of money, but of its cost (that is, 
the quantity of the country’s labour 
wdiich must be expended to obtain it), 
w r e must add to these four conditions 
of cheapness a fifth condition, namely, 

“ whose productive industry is the most 
efficient.” This last, however, does 
not at all affect the value of mone}', 
estimated in commodities: it affects 
the general abundance and facility 
with which all things, money and com¬ 
modities together, can be obtained. 

Although, therefore, Mr. Senior is 






MONEY AS AN IMPORTED COMMODITY. 369 


right in pointing out the great efficiency 
of English labour as the chief cause 
why the precious metals are obtained 
at less cost by England than by most 
other countries, I cannot admit that it 
at all accounts for their being of less 
value; for their going less far in the 
purchase of commodities. This, in so' 
1'ar as it is a fact, and not an illusion, 
must be occasioned by the great de¬ 
mand in foreign countries for the 
staple commodities of England, and the 
generally unbuiky character of those 
commodities, compared with the corn, 
wine, timber, sugar, wool, hides, tallow, 
hemp, flax, tobacco, raw cotton, &c., 
which form the exports of other com¬ 
mercial countries. These two causes 
will account for a somewhat higher 
range of general prices in England 
than elsewhere, notwithstanding the 
counteracting influence of her own 
great demand for foreign commodities. 
I am, however, strongly of opinion that 
the high prices of commodities and 
low purchasing power of money in 
England, are more apparent than real. 
Food, indeed, is somewhat dearer; and 
food composes so large a portion of the 
expenditure when the income is small 
and the family large, that to such 
families England is a dear country. 
Services, also, of most descriptions 
are dearer than in the other countries of 
Europe, from the less costly mode of 
living of the poorer classes on the 
Continent. But manufactured commo¬ 
dities (except most of those in which 
good taste is required) are decidedly 
cheaper; or would be so, if buyers 
would be content with the same quality 
of material and of workmanship. \Y hat 
is called the dearness of living in 
England, is mainly an affair not of 
necessity but of foolish custom; it being 
thought imperative by all classes in 
England above the condition of a day- 
labourer, that the things they consume 
should either be of the same quality 
with those used by much richer people, 
or at least should be as nearly as pos¬ 
sible undistinguishable from them in 
outward appearance. 

§ 3. From the preceding considera¬ 
tions, it appears that those are greatly 

P.E. 


in error who contend that the value 
of money, in countries where it is an 
imported commodity, must be entirely 
regulated by its value in the countries 
which produce it; and cannot be raised 
or lowered in any permanent manner 
unless some change has taken place in 
the cost of production at the mines. 
On. the contrary, any circumstance 
which disturbs the equation of inter¬ 
national demand with respect to a 
particular country, not only may, but 
must, allect the value of money in that 
country—its value at the mines re¬ 
maining the same. The opening of 
a new branch of export trade from 
England; an increase in the foreign 
demand l'or English products, either bv 
the natural course of events or by the 
abrogation of duties; a check to the 
demand in England for foreign com¬ 
modities, by the laying on of import 
duties in England or of export duties 
elsewhere ; these and all other events 
of similar tendency, would make the 
imports of England (bullion and other 
things taken together) no longer an 
equivalent for the exports; and the 
countries which take her exports would 
be obliged to offer their commodities, 
and bullion among the rest, on cheaper 
terms., in order to re-establish the 
equation of demand: and thus England 
would obtain money cheaper, and would 
acquire a generally higher range of 
prices. Incidents the reverse of these 
would produce effects the reverse— 
would reduce prices; or, in other words, 
raise the value of the precious metals. 
It must be observed, however, that 
money would be thus raised in value 
only with respect to home commodities: 
in relation to all imported articles it 
would remain as before, since their 
values would be affected in the same 
way and in the same degree with its 
own. A country which, from any of the 
causes mentioned, gets money cheaper, 
obtains all its other imports cheaper 
likewise. 

It is by no means necessary that the 
increased demand for English commo¬ 
dities, which enables England to sup¬ 
ply herself with bullion at a cheaper 
rate, should be a demand in the mining 
countries. England might export no- 



370 BOOK HI. CHAPTER XX. § 2. 


thing whatever to those countries, and 
yet might be the country which ob¬ 
tained bullion from them on the lowest 
terms, provided there were a sufficient 
intensity of demand in other for. ign 
countries for English goods, which 
would be paid for circuitously, with gold 
and silver from the mining countries. 
The Avhole of its exports are what a 
country exchanges against the whole of 


its imports, and not its exports and 
imports to and from any one country ; 
and the general foreign demand for its 
productions will determine what equi¬ 
valent it must give for imported goods, 
in order to establish an equilibrium 
between its sales and purchases gene¬ 
rally; without regard to the mainte¬ 
nance of a similar equilibrium between 
it and any country singly. 


CHAPTER XX. 

OF THE FOREIGN EXCHANGES. 


§ 1. We have thus far considered 
the precious metals as a commodity, 
imported like other commodities in the 
common course of trade, and have ex¬ 
amined what are the circumstances 
which would in that case determine 
their value. But those metals are also 
imported in another character, that 
Which belongs to them as a medium of 
exchange; not as an article of com¬ 
merce, to be sold for money, but as 
themselves money, to pay a debt, or 
efl'ect a transfer of property. It re¬ 
mains to consider whether the liability 
of gold and silver to be transported 
from country to country for such pur¬ 
poses, in any way modifies the con¬ 
clusions we have already arrived at; or 
places those metals under a different 
law of value from that to which, in 
common with all other imported com¬ 
modities, they would be subject if in¬ 
ternational trade were an affair of 
direct barter. 

Money is sent from one country to 
another for various purposes : such as 
the payment of tributes or subsidies ; 
remittances of revenue to or from de¬ 
pendencies, or of rents or other incomes 
to their absent owners; emigration of 
capital, or transmission of it for foreign 
investment. The most usual purpose, 
however, is that of payment for goods. 
To show in what circumstances money 
actually passes from country to country 
for this or any of the other purposes 
mentioned, it is necessary briefly to 
state the nature of the mechanism by 


which international trade is carried on, 
when it takes place not by barter but 
through the medium of money. 

§ 2. In practice, the exports and im¬ 
ports of a country not only are not 
exchanged directly against each other, 
but often do not even pass through the 
same hands. Each is separately bought 
and paid for with money. We have 
seen, however, that, even in the same 
country, money does not actually pass 
from hand to hand each time that pur¬ 
chases are made with it, and still less 
does this happen between different 
countries. The habitual mode of pay¬ 
ing and receiving payment for com¬ 
modities, between country and country, 
is by bills of exchange. 

A merchant in England, A, has ex¬ 
ported English commodities, consign¬ 
ing them to his correspondent Bin 
France. Another merchant in France, 
C, has exported French commodities, 
suppose of equivalent value,_to a mer¬ 
chant D in England. It is evidently 
unnecessary that B in France should 
send money to A in England, and that 
D in England should send an equal 
sum of money to C in France. The one 
debt may be applied to the payment of 
the other, and the double cost and risk 
of carriage be thus saved. A draws a 
bill on B for the amount which B owes 
to him : D, having an equal amount to 
pay in France, buys this bill from A, 
and sends it to C, who, at the expira¬ 
tion of the number of days which the 





THE FOREIGN 

bill has to run, presents it to B for 
payment. Thus the debt due from 
France to England, and the debt due 
from England to France, are both paid 
without sending an ounce of gold or 
silver from one country to the other. 

In this statement, however, it is 
supposed that the sum of the debts due 
from France to England, and the sum 
of those due from England to France, 
are equal; that .each country has 
exactly the same number of ounces of 
gold or silver to pay and to receive. 
This implies (if we exclude for the 
present any other international pay¬ 
ments than those occurring in the 
course of commerce,) that the exports 
and imports exactly pay for one an¬ 
other, or in other words, that the equa¬ 
tion of international demand is esta¬ 
blished. When such is the fact, the 
international transactions are liqui¬ 
dated without the passage of any 
money from one country to the other. 
But if there is a greater sum due from 
England to France, than is due from 
France to England, or vice versa, the 
debts cannot be simply written off 
against one another. After the one 
has been applied, as far as it will go, 
towards covering the other, the balance 
must be transmitted in the precious 
metals. In point of fact, the merchant 
who has the amount to pay, will even 
then pay for it by a bill. When a 
person has a remittance to make to a 
foreign country, he does not himself 
search for some one who has money to 
receive from that country, and ask him 
for a bill of exchange. In this as in 
other branches of business, there is a 
class of middlemen or brokers, who 
bring buyers and sellers together, or 
stand between them, buying bills from 
those who have money to receive, 
and selling bills to those who have 
money to pay. When a customer 
comes to a broker for a bill on 
Paris or Amsterdam, the broker sells 
to him, perhaps the bill he may him¬ 
self have bought that morning from 
a merchant, perhaps a bill on his own 
correspondent in the foreign city: and 
to enable his correspondent to pay, 
when due, all the bills he has granted, 
be remits to him all those which he has 


EXCHANGES. 37t 

bought and has not resold. In this 
manner these brokers take upon them¬ 
selves the whole settlement of the 
pecuniary transactions between distant 
places, being remunerated by a small 
commission or percentage on the 
amount of each bill which they either 
sell or buy. Now, if the brokers find 
that they are asked for bills on the one 
part, to a greater amount than bills 
are offered to them on the other, they 
do not on this account refuse to give 
them; but since, in that case, they 
have no means of enabling the corre¬ 
spondents on whom their bills are 
drawn, to pay them when due, except 
by transmitting part of the amount in 
gold or silver, they require from those 
to whom they sell bills an additional 
price, sufficient to cover the freight and 
insurance of the gold and silver, with a 
profit sufficient to compensate them for 
their trouble and for the temporary 
occupation of a portion of their capital. 
This premium (as it is called) the 
buyers are willing to pay, because they 
must otherwise go to the expense of 
remitting the precious metals them¬ 
selves, and it is done cheaper by those 
who make doing it a part of their es¬ 
pecial business. But though only some 
of those who have a debt to pay would 
have actually to remit money, all will 
be obliged, by each other’s competition, 
to pay the premium; and the brokers 
are for the same reason obliged to pay 
it to those whose bills they buy. The 
reverse of all this happens, if on the 
comparison of exports and imports, the 
country, instead of having a balance to 
pay, has a balance to receive. The 
brokers find more bills offered to them, 
than are sufficient to cover those which 
they are required to grant. Bills on 
foreign countries consequently fall to a 
discount; and the competition among 
the brokers, which is exceedingly ac¬ 
tive, prevents them from retaining this 
discount as a profit for themselves, and 
obliges them to give the benefit of it to 
those who buy the bills for the purposes 
of remittance. 

Let us suppose that all countries had 
the same currency, as in the progress 
of political improvement they one day 
will have: and, as the most familiar to 

B B 2 



372 BOOK ni. CHAPTER XX. § 2. 


the reader, though not the best, let us 
suppose this currency to be the English. 
When England had the same number 
of pounds sterling to pay to France, 
which France had to pay to her, one 
set of merchants in England would 
want bills, and another set would have 
bills to dispose of, for the very same 
number of pounds sterling; and conse¬ 
quently a bill on France for 100 1. 
would sell for exactly 100Z-, or, in the 
phraseology of merchants, the exchange 
would be at par. As France also, on 
this supposition, would have an equal 
number of pounds sterling to pay and 
to receive, bills on England would be 
at par in France, whenever bills on 
France were at par in England. 

If, however, England had a larger 
sum to pay to France than to receive 
from her, there would be persons re¬ 
quiring bills on France for a greater 
number of pounds sterling than there 
were bills drawn by persons to whom 
money was due. A bill on France for 
1002. would then sell for more than 
1002., and bills would be said to be at 
a premium. The premium, however, 
could not exceed the cost and risk of 
making the remittance in gold, toge¬ 
ther with a trifling profit; because if 
it did, the debtor would send the gold 
itself, in preference to buying the bill. 

If, on the contrary, England had 
more money to receive from France 
than to pay, there would be bills offered 
for a greater number of pounds than 
were wanted for remittance, and the 
price of bills would fall below par: a 
bill for 1002. might be bought for some¬ 
what less than 100Z., and bills would be 
said to be at a discount. 

When England has more to pay than 
to receive, France has more to receive 
than to pay, and vice versa. When, 
therefore, in England, bills on France 
bear a premium, then, in France, bills 
on England are at a discount: and 
when bills on France are at a discount 
in England, bills on England are at a 
premium in France. If they are at 
par in either country, they are so, as 
we have already seen, in both. 

Thus do matters stand between 
countries, or places, which have the 
ames currency. So much of barbarism, 


however, still remains in the transac¬ 
tions of the most civilized nations, that 
almost all independent countries choose 
to assert their nationality by having, 
to their own inconvenience and that of 
their neighbours, a peculiar currency 
of their own. To our present purpose 
this makes no other difference, than 
that instead of speaking of equal sums 
of money, we have to speak of equiva¬ 
lent sums. By equivalent sums, when 
both currencies are composed of the 
same metal, are meant sums which 
contain exactly the same quantity of 
the metal, in weight and fineness ; but 
w T hen, as in the case of France and 
England, the metals are different, what 
is meant is that the quantity of gold in 
the one sum, and the quantity of silver 
in the other, are of the same value in 
the general market of the world : there 
being no material difference between 
one place and another in the relative 
value of these metals. Suppose 25 
francs to be (as within a trifling frac¬ 
tion it is) the equivalent of a pound 
sterling. The debts and credits of the 
two countries would be equal, when the 
one owed as many times 25 francs, as 
the other owed pounds. When this 
was the case, a bill on France for 2500 
francs would be worth in England 
1002., and a bill on England for 1002. 
would be worth in France 2500 francs. 
The exchange is then said to be at 
par: and 25 francs (in reality 25 francs 
and a trifle more)* is called the par of 
exchange with France. When England 
owed to France more than the equiva¬ 
lent of what France owed to her, a bill 
for 2500 francs would be at a premium, 
that is, would be worth more than 1002. 
When France owed to England more 
than the equivalent of what England 
owed to France, a bill for 2500 francs 
would be worth less than 100/., or 
would be at a discount. 

When bills on foreign countries are 
at a premium, it is customary to say 
that the exchanges are against the 
country, or unfavourable to it. In order 

* Written before the change in the rela¬ 
tive value of the two metals produced by the 
gold discoveries. The par of exchange be¬ 
tween gold and silver currencies is now va¬ 
riable, and no one can foresee at what point 
it will ultimately rest. 



THE FOKEIGN 

to understand these phrases, we must 
take notice of what “ the exchange,” 
in the language of merchants, really 
means. It means the power which the 
money of the country has of purchasing 
the money of other countries. Sup¬ 
posing 25 francs to he the exact par of 
exchange, then when it requires more 
than 1001. to buy a bill for 2500 francs, 
100Z. of English money are worth less 
than their real equivalent of French 
money: and this is called, an exchange 
unfavourable to England. The only 
persons in England, however, to whom 
it is really unfavourable, are those who 
have money to pay in France ; for they 
come into the bill market as buyers, 
and have to pay a premium: but to 
those who have money to receive in 
France, the same state of things is 
favourable; for they come as sellers, 
and receive the premium. The pre¬ 
mium, however, indicates that a balance 
is due by England, which might have to 
be eventually liquidated in the precious 
metals: and since, according to the old 
theory, the benefit of a trade consisted 
in bringing money into the country, 
this prejudice introduced the practice 
of calling the exchange favourable 
when it indicated a balance to receive, 
and unfavourable when it indicated 
one to pay: and the phrases in turn 
tended to maintain the prejudice. 

§ 3. It might be supposed at first 
sight that when the exchange is un¬ 
favourable, or in other words, when 
bills are at a premium, the premium 
must always amount to a full equi¬ 
valent for the cost of transmitting 
money: since, as there is really a 
balance to pay, and as the full cost 
must therefore be incurred by some of 
those who have remittances to make, 
their competition wifi compel all to 
submit to an equivalent sacrifice. And 
such would certainly be the case, if it 
were always necessary that whatever 
is destined to be paid should be paid 
immediately. The expectation of great 
and immediate foreign payments some¬ 
times produces a most startling effect 
on the exchanges.* But a small excess 

* On the news of Bonaparte’s landing from 
Elba, the price of bills advanced in one day 


EXCHANGES. 373 

of imports above exports, or any other 
small amount of debt to be paid to 
foreign countries, does not usually affect 
the exchanges to the full extent of the 
cost and risk of transporting bullion. 
The length of credit allowed, generally 
permits, on the part of some of the 
debtors, a postponement of payment, 
and in the mean time the balance may 
turn the other way, and restore the 
equality of debts and credits without 
any actual transmission of the metals. 
And this is the more likely to happen, 
as there is a self adjusting power in 
the variations of the exchange itself. 
Bills are at a premium because a 
greater money value has been im¬ 
ported than exported. But the pre¬ 
mium is itself an extra profit to those 
who export. Besides the price they 
obtain for their goods, they draw for 
the amount and gain the premium. It 
is. on the other hand, a diminution of 
profit to those who import. Besides 
the price of the goods, they have to 
pay a premium for remittance. So 
that what is called an unfavourable 
exchange is an encouragement to ex¬ 
port, and a discouragement to import. 
And if the balance due is of small 
amount, and is the consequence of 
some merely casual disturbance in the 
ordinary course of trade, it is soon 
liquidated in commodities, and the ac¬ 
count adjusted by means of bills, with¬ 
out the transmission of any bullion. 
Not so, however, when the excess of 
imports above exports, which has made 

as much as ten per cent. Of course this pre¬ 
mium was not a mere equivalent for cost of 
carriage, since the freight of such an article 
as gold, even with the addition of war in¬ 
surance, could never have amounted to so 
much. This great price was an equivalent 
not for the difficulty of sending gold, but for 
the anticipated difficulty of procuring it to 
send; the expectation being that there would 
be such immense remittances to the Conti¬ 
nent in subsidies and for the support of 
armies, as would press hard on the stock of 
bullion in the country (which was then en¬ 
tirely denuded of specie), and this, too, in a 
shorter time than would allow of its being 
replenished. Accordingly the price of bul¬ 
lion rose likewise, with the same suddenness. 
It is hardly necessary to say that this took 
place during the Bank restriction. In a con¬ 
vertible state of the currency, no such tiling 
could have occurred until the Bank stopped 
payment. 




374 BOOK III. CHAPTER XXI. § 1. 


the exchange unfavourable, arises from 
a permanent cause. In that case, what 
disturbed the equilibrium must have 
been the state of prices, and it can 
only be restored by acJng on prices. 
It is impossible that prices should be 
such as to invite to an excess of im¬ 
ports, and yet the exports should be 
kept permanently up to the imports by 
the extra profit on exportation derived 
from the premium on bills; for if the 
exports were kept up to the imports, 
bills would not be at a premium, 
and the extra profit would not exist. 
It is through the prices of commodities 
that the connection must be adminis¬ 
tered. 

Disturbances, therefore, of the equi¬ 
librium of imports and exports, and 
consequent disturbances of the ex¬ 
change, may be considered as of two 
classes; the one casual or accidental, 
which, if not on too large a scale, cor¬ 
rect themselves through the premium 
on bills, without any transmission of 
the precious metals: the other arising 
from the general state of prices, which 
cannot be corrected without the sub¬ 
traction of actual money from the cir¬ 
culation of one of the countries, or an 
annihilation of credit equivalent to it; 


since the mere transmission of bullion 
(as distinguished from money), not 
having any effect on prices, is of no 
avail to abate the cause from which 
the disturbance proceeded. 

It remains to observe, that the ex¬ 
changes do not depend on the balance 
of debts and credits with each country 
separately, but with all countries taken 
together. England may owe a balance 
of payments to France ; but it does not 
follow that the exchange with France 
will be against England, and that bills 
on France wall be at a premium; be¬ 
cause a balance may be due to England 
from Holland or Hamburgh, arid she 
may pay her debts to France with bills 
on those places; wrifich is technically 
called arbitration of exchange. There 
is some little additional expense, partly 
commission and partly loss of interest, 
in settling debts in this circuitous 
manner, and to the extent of that 
small difference the exchange with 
one country may vary apart from that 
with others ; but in the main, the ex¬ 
changes with all foreign countries vary 
together, according as the country has 
a balance to receive or to pay on the 
general result of its foreign transac¬ 
tions. 


CHAPTER XXI. 

OF THE DISTRIBUTION OF THE PRECIOUS METALS THROUGH TH T 

COMMERCIAL WORLD. 


§ 1. Having now examined the 
mechanism by winch the commercial 
transactions between nations are ac¬ 
tually conducted, w T e have next to in¬ 
quire whether this mode of conduct¬ 
ing them makes any difference in the 
conclusions respecting international 
values, which w 7 e previously arrived at 
on the hypothesis of barter. 

The nearest analogy would lead us 
to presume the negative. We did not 
find that the intervention of money and 
its substitutes made any difference in 
the law 7 of value as applied to adjacent 
places. Things which w ould have been 


equal in value if the mode of exchange 
had been by barter, are worth equal 
sums of money. The introduction of 
money is a mere addition of one more 
commodity, of which the value is regu¬ 
lated by the same laws as that of all 
other commodities. We shall not be 
surprised, therefore, if w T e find that in¬ 
ternational values also are determined 
by the same causes under a money and 
bill system, as they w'ould be under 
a system of barter; and that money 
has little to do in the matter, except 
to furnish a convenient mode of com¬ 
paring values. 





DISTRIBUTION OF THE PRECIOUS METALS. 37 5 


All interchange is, in substance and 
effect, barter: whoever sells commodi¬ 
ties for money, and with that money 
buys other goods, really buys those 
goods with his own commodities. And 
so of nations: their trade is a mere 
exchange of exports for imports; and 
whether money is employed or not, 
things are only in their permanent 
state when the exports and imports 
exactly pay for each other. When 
this is the case, equal sums of money 
are due from each country to the other, 
the debts are settled by bills, and there 
is no balance to be paid in the precious 
metals. The trade is in a state like 
that which is called in mechanics a 
condition of stable equilibrium. 

But the process by which things are 
brought back to this state when they 
happen to deviate from it, is, at least 
outwardly, not the same in a barter 
system and in a money system. Under 
the first, the country which wants more 
imports than its exports will pay for, 
must offer its exports at a cheaper rate, 
as the sole means of creating a demand 
for them sufficient to re-establish the 
equilibrium. When money is used, the 
country seems to do a thing totally dif¬ 
ferent. She takes the additional im¬ 
ports at the same price as before, and 
as she exports no equivalent, the 
balance of payments turns against 
her; the exchange becomes unfavour¬ 
able, and the difference has to be paid 
in money. This is in appearance a 
very distinct operation from the former. 
Let us see if it differs in its essence, 
or only in its mechanism. 

Let the country which has the 
balance to pay be England, and the 
country which receives it, France. By 
this transmission of the precious metals, 
the quantitj 7 of the currency is dimi¬ 
nished in England, and increased in 
France. This I am at liberty to as¬ 
sume. As we shall see hereafter, it 
would be a very erroneous assumption 
if made in regard to all payments of 
international balances. A balance which 
has only to be paid once, such as the 
payment made for an extra importation 
of corn in a season of dearth, may be 
paid from hoards, or from the reserves 
of bankers, without acting on the cir¬ 


culation. But we are now supposing 
that there is an excess of imports over 
exports, arising from the fact that the 
equation of international demand is not 
yet established: that there is at the 
ordinary prices a permanent demand 
in England for more French goods than 
the English goods required in France 
at the ordinary prices will pay for. 
When this is the case, if a change were 
not made in the prices, there would be 
a perpetually renewed balance to be 
paid in money. The imports require 
to be permanently diminished, or the 
exports to be increased; which can 
only be accomplished through prices; 
and hence, even if the balances are at 
first paid from hoards, or by the ex¬ 
portation of bullion, they will reach 
the circulation at last, for until they 
do, nothing can stop the drain. 

When, therefore, the state of prices 
is such that the equation of inter¬ 
national demand cannot establish it¬ 
self, the country requiring more im¬ 
ports than can be paid for by the 
exports; it is a sign that the country 
has more of the precious metals or 
their substitutes, in circulation, than 
can permanently circulate, and must 
necessarily part with some of them 
before the balance can be restored. 
The currency is accordingly contracted: 
prices fall, and among the rest, the 
prices of exportable articles ; for which, 
accordingly, there arises, in foreign 
countries, a greater demand: while 
imported commodities have possibly 
risen in price, from the influx of money 
into foreign countries, and at all events 
have not participated in the general 
fall. But until the increased cheapness 
of English goods induces foreign coun¬ 
tries to take a greater pecuniary value, 
or until the increased dearness (positive 
or comparative) of foreign goods makes 
England take a less pecuniary value, 
the exports of England will be no 
nearer to paying for the imports than 
before, and the stream of the precious 
metals which had begun to flow out of 
England, will still flow on. This ef¬ 
flux will continue, until the fall of prices 
in England brings within reach of 
the foreign market some commodity 
which England did not previously send 



376 BOOK ITT. CHAPTER XXI. § 2. 


thither; or until the reduced price of 
the things which she did send, has 
forced a demand abroad for a sufficient 
quantity to pay for the imports, aided, 
perhaps, by a reduction of the English 
demand fpr foreign goods, through 
their enhanced price, either positive 
or comparative. 

Now this is the very process which 
took place on our original supposition 
of barter. Not only, therefore, does 
the trade between nations tend to the 
same equilibrium between exports and 
imports, whether money is employed 
or not, but the means by which this 
equilibrium is established are essen¬ 
tially the same. The country whose 
exports are not sufficient to pay for 
her imports, offers them on cheaper 
terms, until she succeeds in forcing the 
necessary demand : in other words, the 
Equation of International Demand, 
under a money system as well as 
under a barter system, is the law of 
international trade. Every country 
exports and imports the very same 
things, and in the very same quantity, 
under the one system as under the 
other. In a barter system, the trade 
gravitates to the point at which the 
sum of the imports exactly exchanges 
for the sum of the exports : in a money 
system, it gravitates to the point at 
which the sum of the imports and the 
sum of the exports exchange for the 
same quantity of money. And since 
things which are equal to the same 
thing are equal to one another, the 
exports and imports which are equal 
in money price, would, if money were 
not used, precisely exchange for one 
another.* 

* The subjoined extract from the separate 
Essay previously referred to, will give some 
assistance in following the course of the phe¬ 
nomena. It is adapted to the imaginary case 
used for illustration throughout that Essay, 
the case of a trade between England and 
Germany in cloth and linen. 

“ We may at first make whatever supposi¬ 
tion we will with respect to the value of 
money. Let us suppose, therefore, that be¬ 
fore the opening of the trade, the price of 
cloth is the same in both countries, namely, 
six shillings per yard. As 10 yards of cloth 
were supposed to exchange in England for 
15 yards of linen, in Germany for 20, we must 
suppose that linen is sold in England at four 
shillings per yard, in Germany at three. 


§ 2. It thus appears that the law of 
international values, and, consequently, 
the division of the advantages of trade 
among the nations which carry it on, 
are the same on the supposition of 
money, as they would he in a state of 
barter. In international, as in ordinary 
domestic interchanges, money is to 
commerce only wliat oil is to ma¬ 
chinery, or railways to locomotion, a 
contrivance to diminish friction. In 
order still further to test these con¬ 
clusions, let us proceed to re-examine, 
on the supposition of money, a question 
which we have already investigated on 
the hypothesis of barter, namely, to 
what extent the benefit of an improve¬ 
ment in the production of an exportable' 
article, is participated in by the coun¬ 
tries importing it. 

The improvement may either consist 
in the cheapening of some article which 
was already a staple production of the 
country, or in the establishment of 
some new branch of industry, or of 
some process rendering an article ex¬ 
portable which bad not till then been 
exported at all. It will be convenient 
to begin with the case of anewexport, as 
being somewhat the simpler of the two. 

The first effect is that the article 
falls in price, and a demand arises for 
it abroad. This new exportation dis¬ 
turbs the balance, turns the exchanges, 
money flows into the country (which 
we shall suppose to be England), and 
continues to flow until prices rise. This 
higher range of prices will somewhat 
check the demand in foreign countries 
for the new article of export; and will 
diminish the demand which existed 
abroad for the other things which 

Cost of carriage and importer’s profit are 
left, as before, out of consideration. 

“ In this state of prices, cloth, it is evident, 
cannot yet be exported from England into 
Germany: but linen can be imported from 
Germany into England. It will be so: and, 
in the first instance, the linen will be paid 
for in money. 

“ The efflux of money from England, and 
its influx into Germany, will raise money 
prices in the latter country, and lower them 
in the former. Linen will rise in Germany 
above three shillings per yard, and cloth 
above six shillings. Linen in England, being 
imported from Germany, will (since cost of 
carriage is not reckoned) sink to the same 
price as in that country, while cloth will fall 



DISTRIBUTION OF THE PRECIOUS METALS. 377 


England was in the habit of exporting. 
The exports will thus be diminished; 
while at the same time the English 
public, having more money, will have 
a greater power of purchasing foreign 
commodities. If they make use of this 

below six shillings. As soon as the price of 
cloth is lower in England than in Germany, 
it will begin to be exported, and the price of 
cloth in Germany will fall to what it is in 
England. As long as the cloth exported does 
not suffice to pay for the linen imported, 
money will continue to flow from England 
into Germany, and prices generally will con¬ 
tinue to fall in England and rise in Ger¬ 
many. By the fall, however, of cloth in 
England, cloth will fall in Germany also, 
and the demand for it will increase. By 
the rise of linen in Germany, linen must 
rise in England also, and the demand for it 
will diminish. As cloth fell in price and 
linen rose, there would be some particular 
price of both articles, at'which the cloth ex¬ 
ported and the linen imported would exactly 
pay for each other. At this point pi’ices 
would remain, because money would then 
cease to move out of England into Germany'. 
What this point might be, would entirely 
depend upon the circumstances and inclina¬ 
tions of the purchasers on both sides. If 
the fall of cloth did not much increase the 
demand for it in Germany, and the rise of 
linen did not diminish very rapidly the de¬ 
mand for it in England, much money must 
pass before the equilibrium is restored ; cloth 
would fall very much, and linen would rise, 
until England, perhaps, had to pay nearly as 
much for it as when she produced it for her¬ 
self. But if, on the contrary, the fall of 
cloth caused a very rapid increase of the de¬ 
mand for it in Germany, and the rise of linen 
in Germany reduced very rapidly the de¬ 
mand in England from w hat it was under 
the influence of the first cheapness produced 
by the opening of the trade; the cloth would 
very soon suffice to pay for the linen, little 
money would pass between the two countries, 
and England would derive a large portion of 
the benefit of the trade. We have thus ar¬ 
rived at precisely the same conclusion, in sup¬ 
posing the employment of money, which we 
found to hold under the supposition of barter. 

“ In what shape the benefit accrues to the 
two nations from the trade is clear enough. 
Germany, before the commencement of the 
trade, paid six shillings per yard for broad¬ 
cloth : she now obtains it at a lower price. 
This, however, is not the whole of her ad¬ 
vantage. As the money-prices of all her 
other commodities have risen, the money- 
incomes of all her producers have increased. 
This is no advantage to them in buying from 
each other, because the price of w'hat they 
buy has risen in the same ratio with their 
means of paying for it: but it is an advan¬ 
tage to them in buying anything which has 
not risen, and, still more, anything which 
has fallen. They, therefore, benefit as con¬ 
sumers of clo,th, not merely to the extent to 


increased power of purchase, there will 
be an increase of imports ; and bv this, 
and the check to exportation, the 
equilibrium of imports and exports will 
be restored. The result to foreign 
countries will be, that they have to 

which cloth has fallen, but also to the extent 
to w r hich other prices have risen. Suppose 
that this is one-tenth. The same proportion 
of their money-incomes as before, will suffice 
to supply their other wants; and the re¬ 
mainder, being increased one-tenth in 
amount, will enable them to purchase one- 
tenth more cloth than before, even though 
cloth had not fallen : but it has fallen ; so that 
they are doubly gainers. They purchase 
the same quantity with less money, and have 
more to expend upon their other wants. 

“In England, on the contrary, general 
money-prices have fallen. Linen, however, 
has fallen more than the rest, having been 
lowered in price by importation from a 
country where it was cheaper; whereas the 
others have fallen only from the consequent 
efflux of money. Notwithstanding, there¬ 
fore, the general fall of money-prices, the 
English producers will be exactly as they 
were in all lother respects, while they will 
gain as purchasers of linen. 

“ The greater the efflux of money required 
to restore the equilibrium, the greater will 
be the gain of Germany, both by the fall of 
cloth and by the rise of her general prices. 
The less the efflux of money requisite, the 
greater will be the gain of England; because 
the price of linen will continue lower, and 
her general prices will not be reduced so 
much. It must not, however, be imagined 
that high money-prices are a good, and low 
money-prices an evil, in themselves. But 
the higher the general money-prices in any 
country, the greater will be that country’s 
means of purchasing those commodities, 
which, being imported from abroad, are in¬ 
dependent of the causes which keep prices 
high at home.” 

In practice, the cloth and the linen would 
not, as here supposed, be at the same price 
in England and in Germany: each would be 
dearer in money-price in the country which 
imported than in that which produced it, by 
the amount of the cost of carriage, together 
with the ordinary profit on the importer’s 
capital for the average length of time which 
elapsed before the commodity could be dis¬ 
posed of. But it does not follow that each 
country pays the cost of carriage of the com¬ 
modity it imports; for the addition of this 
item to the price may operate as a greater 
check to demand on one side than on the 
other; and the equation of international 
demand, and consequent equilibrium of pay¬ 
ments, may not be maintained. Money 
would then flow out of one country into the 
other, until, in the manner already illus¬ 
trated, the equilibrium was restored: and, 
when this was effected, one country would 
be paying more than its own cost of carriage, 
and the other less. 




378' BOOK III. CHAPTER XXI. 5 2. 


pay dearer than before for their other 
imports, and obtain the new commodity 
cheaper than before, but not so much 
cheaper as England herself does. I say 
this, being well aware that the article 
would be actually at the very same 
price (cost of carriage excepted) in 
England and in other countries. The 
cheapness, however, of the article is 
not measured solely by the money- 
price, but by that price compared with 
the money incomes of the consumers. 
The price is the same to the English 
and to the foreign consumers ; but the 
former pay that price from money in¬ 
comes which have been increased by 
the new distribution of the precious 
metals; while the latter have had their 
money incomes probably diminished by 
the same cause. The trade, therelore, 
has not imparted to the foreign con¬ 
sumer the whole, but only a portion, of 
the benefit which the English con¬ 
sumer has derived from the improve¬ 
ment; while England has also benefited 
in the prices of foreign commodities. 
Thus, then, any industrial improve¬ 
ment which leads to the opening of a 
new* branch of export trade, benefits a 
country not only by the cheapness of 
the article in which the improvement 
has taken place, but by a general 
cheapening of all imported products. 

Let us now change the hypothesis, 
and suppose that the improvement, 
instead of creating a new export from 
England, cheapens an existing one. 
When we examined this case on the 
supposition of barter, it appeared to 
us that the foreign consumers might 
either obtain the same benefit from the 
improvement as England herself, or a 
less benefit, or even a greater benefit, 
according to the degree in which the 
consumption of the cheapened article is 
calculated to extend itself as the article 
diminishes in price. The same con¬ 
clusions will be found true on the sup¬ 
position of money. 

Let the commodity in -which there is 
an improvement, be cloth. The first 
effect of the improvement is that its 
■price falls, and there is an increased de¬ 
mand for it in the foreign market. But 
this demand is of uncertain amount. 
Suppose the foreign consumers to in¬ 


crease their purchases in the exact 
ratio of the cheapness, or in other 
words, to lay out in cloth the same 
sum of money as before; the same 
aggregate payment as before will be 
due from foreign countries to England; 
the equilibrium of exports and imports 
will remain undisturbed, and foreigners 
will obtain the full advantage of the 
increased cheapness of cloth. But if 
the foreign demand for cloth is of such 
a character as to increase in a greater 
ratio than the cheapness, a larger sum 
thaD formerly will be due to England 
for cloth, and when paid will raise 
English prices, the price of cloth in¬ 
cluded; this rise, however, will affect 
only the foreign purchaser, English 
incomes being raised in a corresponding 
proportion ; and the foreign consumer 
will thus derive a less advantage than 
England from the improvement. If, on 
the contrary, the cheapening of cloth 
does not extend the foreign demand for 
it in a proportional degree, a less sum 
of debts than before will be due to 
England for cloth, while there will be 
the usual sum of debts due from Eng¬ 
land to foreign countries ; the balance 
of trade will turn against England, 
money will be exported, prices (that of 
cloth included) will fall, and cloth will 
eventually be cheapened to the foreign 
purchaser in a still greater ratio than 
the improvement has cheapened it to 
England. These are the very conclu¬ 
sions which we deduced on the hypo¬ 
thesis of barter. 

The result of the preceding discussion 
cannot be better summed up than in 
the words of Ricardo.* “ Gold and 
silver having been chosen for the gene¬ 
ral medium of circulation, they are, 
by the competition of commerce, dis¬ 
tributed in such proportions amongst 
the different countries of the world as 
to accommodate themselves to the 
natural traffic which would take place 
if no such metals existed, and the trade 
between countries were purely a trade 
of barter.” Of this principle, so fertile 
in consequences, previous to which the 
theory of foreign trade was an unintel¬ 
ligible chaos, Mr. Ricardo, though he 

* Principles of Political Economy and Taxa¬ 
tion, 3rd ed. p. 143. 



DISTRIBUTION OF THE PRECIOUS METALS. 379 


did not pursue it into its ramifications, 
was the real originator. No writer who 
preceded him appears to have had a 
glimpse of it: and few are those who 
even since his time have had an ade¬ 
quate conception of its scientific value. 

§ 3. It is now necessary to inquire, 
in what manner this law of the distri¬ 
bution of the precious metals by means 
of the exchanges, affects the exchange 
value of money itself; and how it 
tallies with the law by which we found 
that the value of money is regulated 
when imported as a mere article of 
merchandize. For there is here a 
semblance of contradiction, which has, 
I think, contributed more than any¬ 
thing else to make some distinguished 
political economists resist the evidence 
of the preceding doctrines. Money, 
they justly think, is no exception to 
the general laws of value ; it is a com¬ 
modity like any other,' and its average 
or natural value most depend on the 
cost of producing, or at least of obtain¬ 
ing it. That its distribution through 
the world therefore, and its different 
value in different places, should be 
liable to be altered, not by causes 
affecting itself, but by a hundred 
causes unconnected wfith it; by every¬ 
thing which affects the trade in other 
commodities, so as to derange the 
equilibrium of exports and imports; 
appears to these thinkers a doctrine 
altogether inadmissible. 

But the supposed anomaly exists 
only in semblance. The causes which 
bring money into or carry it out of a 
country through the exchanges, to re¬ 
store the equilibrium of trade, and 
which thereby raise its value in some 
countries and lower it in others, are 
the very same causes on which the 
local value of money would depend, if 
it were never imported except as a 
merchandize, and never except directly 
from the mines. When the value of 
money in a country is permanently 
lowered by an influx of it through the 
balance of trade, the cause, if it is not 
diminished cost of production, must be 
one of those causes which compel a 
new adjustment, more favourable to 
the country, of the equation of inter¬ 


national demand: namely, either an 
increased demand abroad for her com¬ 
modities, or a diminished demand on 
her part for those of foreign countries. 
Now an increased foreign demand for 
the commodities of a country, or a 
diminished demand in the country for 
imported commodities, are the very 
causes which, on the general principles 
of trade, enable a country to purchase 
all imports, and consequently the pre¬ 
cious metals, at a lower value. There 
is therefore no contradiction, but the 
most perfect accordance, in the results 
of the two different modes in which 
the precious metals may be obtained. 
When money flows from country to 
country in consequence of changes in 
the international demand for commodi¬ 
ties, and by so doing alters its own 
local value, it merely realizes, by a 
more rapid process, the effect which 
would otherwise take place more 
slowly, by an alteration in the relative 
breadth of the streams by which the 
precious metals flow into different re¬ 
gions of the earth from the mining 
countries. As therefore we before saw 
that the use of money as a medium of 
exchange does not in the least alter 
the law on which the values of other 
things, either in the same country or 
internationally, depend, so neither does 
it alter the law of the value of the 
precious metal itself: and there is in 
the whole doctrine of international 
values as now laid down, a unity and 
harmony which is a strong collateral 
presumption of truth. 

§ 4. Before closing this discussion, 
it is fitting to point out in what 
manner and degree the preceding con¬ 
clusions are affected by the existence 
of international payments not originat¬ 
ing in commerce, and for which no 
equivalent in either money or com¬ 
modities is expected or received ; such 
as a tribute, or remittances of rent to 
absentee landlords or of interest to 
foreign creditors, or a government ex¬ 
penditure abroad, such as England 
incurs in the management of some of 
her colonial dependencies. 

To begin with the case of barter. 
The supposed annual remittances being 



BOOK III. CHAPTER XXII. § 1. 


380 

made in commodities, and being ex¬ 
ports for which there is to be no return, 
it is no longer requisite that the im¬ 
ports and exports should pay for one 
another: on the contrary, there must 
be an annual excess of exports over 
imports, equal to the value of the re¬ 
mittance. If, before the country be¬ 
came liable to the annual payment, 
foreign commerce was in its natural 
state of equilibrium, it will now be 
necessary for the purpose of effecting 
the remittance, that foreign countries 
should be induced to take a greater 
quantity of exports than before: which 
can only be done by offering those ex¬ 
ports on cheaper terms, or in other 
words, by paying dearer for foreign 
commodities. The international values 
will so adjust themselves that either by 
greater exports, or smaller imports, or 
both, the requisite excess on the side 
of exports will be brought about; and 
this excess will become the permanent 
state. The result is, that a country 
which makes regular payments to 
foreign countries, besides losing what 
it pays, loses also something more, by 
the less advantageous terms on which 
it is forced to exchange its productions 
for foreign commodities. 

The same results follow on the sup¬ 


position of money. Commerce being 
supposed to be in a state of equilibrium 
when the obligatory remittances begin, 
the first remittance is necessarily made 
in money. This lowers prices in the 
remitting country, and raises them in 
the receiving. The natural effect is 
that more commodities are exported 
than before, and fewer imported, and 
that, on the score of commerce alone, a 
balance of money will be constantly 
due from the receiving to the paying 
country. When the debt thus annually 
due to the tributary country becomes 
equal to the annual tribute or other 
regular payment due from it, no further 
transmission of money takes place; 
the equilibrium of exports and imports 
will no longer exist, but that of pay¬ 
ments will; the exchange will be at 
par, the two debts will be set off 
against one another, and the tribute or 
remittance will Jbe virtually paid in 
goods. The result to the interests of 
the two countries will be as already 
pointed out- the paying country will 
give a higher price for all that it buys 
from the receiving country, while the 
latter, besides receiving the tribute, 
obtains the exportable produce of the 
tributary country at a lower price. 


CHAPTER XXII. 

INFLUENCE OF TOE CURRENCY ON THE EXCHANGES AND ON FOREIGN TRADE. 


§ 1. In our inquiry into the laws 
of international trade, we commenced 
with the principles which determine 
international exchanges and inter¬ 
national values on the hypothesis of 
barter. We next showed that the in¬ 
troduction of money as a medium of 
exchange, makes no difference in the 
laws of exchanges and of values be¬ 
tween country and country, no more 
than between individual and indi¬ 
vidual : since the precious metals, 
under the influence of those same laws, 
distribute themselves in such propor¬ 


tions among the different countries of 
the world, as to allow the very same 
exchanges to go on, and at the same 
values, as would be the case under a 
system of barter. We lastly considered 
how the value of money itself is 
affected, by those alterations in the 
state of trade which arise from altera¬ 
tions either in the demand and supply 
of commodities or in their cost of pro¬ 
duction. It remains to consider the 
alterations in the state of trade which 
originate not in commodities but in 
money. 





INFLUENCE OF CURRENCY ON FOREIGN TRADE. 381 


Gold and silver may vary like other 
things, though they are not so likely 
to vary as other things, in their cost of 
production. The demand for them in 
foreign countries may also vary. It 
may increase, by augmented employ¬ 
ment of the metals for purposes of art 
and ornament, or because the increase 
of production and of transactions has 
created a gi’eater amount of business 
to he done by the circulating medium. 
It may diminish, for the opposite 
reasons ; or from the extension of the 
economizing expedients by which the 
use of metallic money is partially dis¬ 
pensed with. These changes act upon 
the trade between other countries and 
the mining countries, and upon the 
value of the precious metals, according 
to the general laws of the value of im¬ 
ported commodities: which have been 
set forth in the previous chapters with 
sufficient fulness. 

What I propose to examine in the 
present chapter, is not those circum¬ 
stances affecting money, which alter 
the permanent conditions of its value ; 
but the effects produced on interna¬ 
tional trade by casual or temporary 
variations in the value of money, 
which have no connexion with any 
causes affecting its permanent value. 
This is a subject of importance, on 
account of its bearing upon the prac¬ 
tical problem which has excited so 
much discussion for sixty years past, 
the regulation of the currency. 

§ 2. Letus suppose in any country 
a circulating medium purely metallic, 
and a sudden casual increase made to 
it; for example, by bringing into cir¬ 
culation hoards of treasure, which had 
been concealed in a previous period of 
foreign invasion or internal disorder. 
The natural effect would be a rise of 
prices. This would check exports, and 
encourage imports ; the imports would 
exceed the exports, the exchanges 
would become unfavourable, and the 
newly-acquired stock of money would 
diffuse itself over all countries with 
which the supposed country carried on 
trade, and from them, progressively, 
through all parts of the commercial 
world. The money which thus over¬ 


flowed would spread itself to an equal 
depth over all commercial countries. 
For it would go on flowing until the 
exports and imports again balanced 
one another: and this (as no change 
is supposed in the permanent circum¬ 
stances of international demand) could 
only be, when the money had diffused 
itself so equally that prices had risen 
in the same ratio in all countries, so 
that the alteration of price would be 
for all practical purposes ineffective, 
and the exports and imports, though 
at a higher money valuation, would be 
exactly the same as they were ori¬ 
ginally. This diminished value of 
money throughout the world, (at least 
if the diminution was considerable) 
would cause a suspension, or at least 
a diminution, of the annual supply 
from the mines: since the metal 
would no longer command a value 
equivalent to its highest cost of pro¬ 
duction. The annual waste would, 
therefore, not be fully made up, and 
the usual causes of destruction would 
gradually reduce the aggregate quan¬ 
tity of the precious metals to its 
former amount; after which their pro¬ 
duction would recommence on its 
former scale. The discovery of the 
treasure would thus produce only tem¬ 
porary effects ; namely, a brief dis¬ 
turbance of international trade until 
the treasure had disseminated itself 
through the world, and then a tem¬ 
porary depression in the value of the 
metal, below that which corresponds 
to the cost of producing or of obtain¬ 
ing it; which depression would gra¬ 
dually be corrected, by a temporarily 
diminished production in the producing 
countries, and importation in the im¬ 
porting countries. 

The same effects which would thus 
arise from the discovery of a treasure, 
accompany the process by which bank 
notes, or any of the other substitutes 
for money, take the place of the pre¬ 
cious metals. Suppose that England 
possessed a currency wholly metallic, 
of twenty millions sterling, and that 
suddenly twenty millions of banknotes 
were sent into circulation. If these were 
issued, by bankers, they would be em¬ 
ployed iu loans, or in the purchase of 




382 BOOK HI. CHAPTER XXH. § 2. 


securities, and would therefore create 
a sadden fall in the rate of interest, 
which would probably send a great 
part of the twenty millions of gold out 
of the country as capital, to seek a 
higher rate of interest elsewhere, be¬ 
fore there had been time for any 
action on prices. But we will suppose 
that the notes are not issued by 
hankers, or money-lenders of any 
kind, but by manufacturers, in the 
payment of wages and purchase of 
materials, or by the government in its 
ordinary expenses, so that the whole 
amount would be rapidly carried into 
the markets for commodities. The 
following would be the natural order 
of consequences. All prices would 
rise greatly. Exportation would almost 
cease; importation would be prodi¬ 
giously stimulated. A great balance 
of payments would become due; the 
exchanges would turn against England, 
to the full extent of the cost of ex¬ 
porting money; and the surplus coin 
would pour itself rapidly forth, over 
the various countries of the world, in 
the order of their proximity, geogra¬ 
phically and commercially, to England. 
The efflux would continue until the 
currencies of all countries had come 
to a level; by which I do not mean, 
until money became of the same value 
everywhere, but until the differences 
were only those which existed before, 
and which corresponded to permanent 
differences in the cost of obtaining it. 
"When the rise of prices had extended 
itself in an equal degree to all coun¬ 
tries, exports and imports would every¬ 
where revert to what they were at 
first, would balance one another, and 
the exchanges would return to par. 
If such a sum of money as twenty 
millions, when spread over the whole 
surface of the commercial world, were 
sufficient to raise the general level in 
a perceptible degree, the effect would 
be of no long duration. No alteration 
haring occurred in the general condi¬ 
tions under which the metals were 
procured, either in the world at large 
or in any part of it, the reduced value 
would no longer be remunerating, and 
the supply from the mines would 
cease partially or wholly, until the 


twenty millions were absorbed ;* after 
which absorption, the currencies of all 
countries would be, in quantity and in 
value, nearly at their original level. 
I say nearly, for in strict accuracy 
there would be a slight difference. A 
somewhat smaller annual supply of 
the precious metals would now be re¬ 
quired, there being in the world twenty 
millions less of metallic money under¬ 
going waste. The equilibrium of pay¬ 
ments, consequently, between the 
mining countries and the rest of the 
world, would thenceforth require that 
the mining countries should either 
export rather more of something else, 
or import rather less of foreign com • 
modities ; which implies a somewhat 
lower range of prices than previously 
in the mining countries, and a some¬ 
what higher in all others ; a scantier 
currency in the former, and rather 
fuller currencies in the latter. This 
effect, which would be too trifling to 
require notice except for the illustra¬ 
tion of a principle, is the only perma¬ 
nent change which* would be produced 
on international trade, or on the value 
or quantity of the currency of any 
country. 

Effects of another kind, however, 
will have been produced. Twenty 
millions which formerly existed in the 
unproductive form of metallic money, 
have been converted into what is, or 
is capable of becoming, productive 
capital. This gain is at first made by 
England at the expense of other 
countries, who have taken her super¬ 
fluity of this costly and unproductive 
article off her hands, giving for it an 
equivalent value in other commodities. 
By degrees the loss is made up to 
those countries by diminished influx 
from the mines, and finally the world 
has gained a virtual addition of twenty 
millions to its productive resources. 
Adam Smith’s illustration, though so 
well known, deserves for its extreme 

* I am here supposing a state of thing 
in which gold and silver mining are a pers 
manent branch of industry, carried on under 
known conditions; and not the present state 
of uncertainty, in which gold-gathering is a 
game of chance, prosecuted (for the present) 
in the spirit of an adventure, not in that of a 
regular industrial pursuit. 






INFLUENCE OF CURRENCY ON FOREIGN TRADE. 383 


aptness to be once more repeated. 
He compares tlie substitution of paper 
in the room of the precious metals, to 
the construction of a highway through 
the air, by which the ground now 
occupied by roads would become avail¬ 
able for agriculture. As in that case 
a portion of the soil, so in this a part 
of the accumulated wealth of the 
country, would be relieved from a 
function in which it was only em¬ 
ployed in rendering other soils and 
capitals productive, and would itself 
become applicable to production; the 
office it previously fulfilled being equally 
well discharged by a medium which 
costs nothing. 

The value saved to the community 
by thus dispensing with metallic 
money, is a clear gain to those who 
provide the substitute. They have the 
use of twenty millions of circulating 
medium which have cost them only the 
expense of an engraver’s plate. If 
they employ this accession to their 
fortunes as productive capital, the pro¬ 
duce of the country is increased and 
the community benefited, as much as 
by any other capital of equal amount. 
Whether it is so employed or not, de¬ 
pends, in some degree, upon the mode 
of issuing it. If issued by the govern¬ 
ment, and employed in paying off debt, 
it would probably become productive 
capital. The government, however, 
may prefer employing this extraor¬ 
dinary resource in its ordinary ex¬ 
penses; may squander it uselessly, or 
make it a mere temporary substitute 
for taxation to an equivalent amount; 
in which last case the amount is saved 
by the taxpayers at large, who either 
add it to their capital or spend it as 
income. When paper currency is sup¬ 
plied, as in our own country, by 
bankers and banking companies, the 
amount is almost wholly turned into 
productive capital: for the issuers, 
being at all times liable to be called 
upon to refund the value, are under 
the strongest inducements not to 
squander it, and the only cases in 
which it is not forthcoming are cases 
of fraud or mismanagement. A 
banker’s profession being that of a 
money-lender, his issue of notes is a 


simple extension of his ordinary occu¬ 
pation. He lends the amount to 
farmers, manufacturers, or dealers, who 
employ it in their several businesses. 
So employed, it yields, like any other 
capital, wages of labour and profits of 
stock. The profit is shared between 
the banker, who receives interest, and 
a succession of borrowers, mostly for 
short periods, who after paying the 
interest, gain a profit in addition, or a 
convenience equivalent to profit. The 
capital itself in the long run becomes 
entirely wages, and when replaced by 
the sale of the produce, becomes wages 
again ; thus affording a perpetual fund, 
of the value of twenty millions, for the 
maintenance of productive labour, aud 
increasing the annual produce of the 
country by all* that can be produced 
through the means of a capital of that 
value. To this gain must be added a 
further saving to the country, of the 
annual supply of the precious metals 
necessary for repairing the wear and 
tear, and other waste, of a metallic 
currency. 

The substitution, therefore, of paper 
for the precious metals, should always 
be carried as far as is consistent with 
safety ; no greater amount of metallic 
currency being retained, than is ne¬ 
cessary to maintain, both in fact and in 
public belief, the convertibility of the 
paper. A country with the extensive 
commercial relations of England, is 
liable to be suddenly called upon for 
large foreign payments, sometimes in 
loans, or other investments of capital 
abroad, sometimes as the price of some 
unusual importation of goods, the most 
frequent case being that of large im¬ 
portations of food consequent on a bad 
harvest. To meet such demands it is 
necessary that there should be, either 
in circulation or in the coffers of the 
banks, coin or bullion to a very consi¬ 
derable amount, and that this, when 
drawn out by any emergency, should 
be allowed to return after the emer¬ 
gency is past. But since gold wanted 
for exportation is almost invariably 
drawn from the reserves of the banks, 
and is never likely to be taken directly 
from the circulation while the banks 
remain solvent, the only advantage 




384 BOOK III. CHAPTER XXII. § 3. 


which can he obtained from retaining 
partially a metallic currency for daily 
purposes is, that the banks may oc¬ 
casionally replenish their reserves 
from it. 

§ 3. When metallic money had 
been entirely superseded and expelled 
from circulation, bv the substitution of 
an equal amount of bank notes, any at¬ 
tempt to keep a still further quantity 
of paper in circulation must, if the 
notes are convertible, be a complete 
failure. The new issue would again 
set in motion the same train of conse¬ 
quences by which the gold coin had 
already been expelled. The metals 
would, as before, be required for ex¬ 
portation, and would be for that pur¬ 
pose demanded from the banks, to the 
full extent of the superfluous notes; 
which thus could not p>ossibly be re¬ 
tained in circulation. If, indeed, the 
notes were inconvertible, there would 
be no such obstacle to the increase 
of their quantity. An inconvertible 
paper acts in the same way as a con¬ 
vertible, while there remains any coin 
for it to supersede: the difference 
begins to manifest itself when all the 
coin is driven from circulation (except 
what may be retained for the con¬ 
venience of small change), and the 
issues still go on increasing. When 
the paper begins to exceed in quantity 
the metallic currency which it super¬ 
seded, prices of course rise ; things 
which were worth 51. in metallic 
money, become worth 61. in inconver- 
tible paper, or more as the case may 
be. But this rise of price will not, as 
in the cases before examined, stimulate 
import, and discourage export. The 
imports and exports are determined by 
the metallic prices of things, not by 
the paper prices : and it is only when 
the paper is exchangeable at pleasure 
for the metals, that paper prices and 
metallic prices must correspond. 

Let us suppose that England is the 
country which has the depreciated 
paper. Suppose that some English 
production could be bought, while the 
currency was still metallic, for 51., and 
sold in France for 51. 10s., the differ¬ 
ence covering the expense and risk, 


and affording a profit to the merchant. 
On account of the depreciation, this 
commodity will now cost in England 

61., and cannot be sold in France for 
more than 51. 10s., and yet it will be 
exported as before. Why? Because 
the 51. 10s. which the exporter can get 
for it in France, is not depreciated 
paper, but gold or silver: and since in 
England bullion has risen, in the same 
proportion with other things—if the 
merchant brings the gold or silver to 
England, he can sell his 51. 10s. for 
61. 12s, and obtain as before 10 per 
cent for profit and expenses. 

It thus appears, that a depreciation 
of the currency does not affect the 
foreign trade of the country : this is 
carried on precisely as if the currency 
maintained its value. But though the 
trade is not affected, the exchanges 
are. When the imports and exports 
are in equilibrium, the exchange, in a 
metallic currency, would be at par; a 
bill on France for the equivalent of 
five sovereigns, would be worth five 
sovereigns. But five sovereigns, of the 
quantity of gold contained in them, 
having come to be worth in England 

61., it follows that a bill on France for 

51., will be worth 61. When, therefore, 
the real exchange is at par, there will 
be a nominal exchange against the 
country, of as much per cent as the 
amount of the depreciation. If the 
currency is depreciated 10, 15, or 20 
per cent, then in whatever way the 
real exchange, arising from the varia¬ 
tions of international debts and credits, 
may vary, the quoted exchange will 
always differ 10, 15, or 20 per cent 
from it. However high this nominal 
premium may be, it has no tendency to 
send gold out of the country, for the 
purpose of drawing a bill against it 
and profiting by the premium; be¬ 
cause the gold so sent must be pro¬ 
cured, not from the banks and at par, 
as in the case of a convertible cur¬ 
rency, but in the market, at an ad¬ 
vance of price equal to the premium. 
In such cases, instead of saying that 
the exchange is unfavourable, it would 
be a more correct representation to say 
that the par has altered, since there is 
now required a larger quantity of 



RATE OF INTEREST. 385 


English currency to be equivalent to 
the same quantity of foreign. The 
exchanges, however, continue to be 
computed according to the metallic par. 
The quoted exchanges, therefore, when 
there is a depreciated currency, are 
compounded of two elements or factors; 
the real exchange, which follows the 
variations of international payments, 
and the nominal exchange, which 
varies with the depreciation of the cur¬ 
rency, but which, while there is any 
depreciation at all, must always be un¬ 
favourable. Since the amount of de¬ 
preciation is exactly measured by the 
degree in which the market price of 
bullion exceeds the Mint valuation, we 
have a sure criterion to determine what 
portion of the quoted exchange, being 
referable to depreciation, may be struck 
off as nominal; the result so corrected 
expressing the real exchange. 

The same disturbance of the ex¬ 
changes and of international trade, 
which is produced by an increased 
issue of convertible bank notes, is in 
like manner produced by those exten¬ 
sions of credit, which, as was so fully 
shown in a preceding chapter, have the 
same effect on prices as an increase of 
the currency. Whenever circumstances 
have given such an impulse to the 
spirit of speculation as to occasion a 
great increase of purchases on credit, 
money prices rise, just as much as they 
would have risen if each person who sO 
buys on credit had bought with money. 
All the effects, therefore, must be simi¬ 
lar. As a consequence of high prices, 


exportation is checked and importation 
stimulated; though in fact the increase 
of importation seldom waits for the 
rise of prices which is the consequence 
of speculation, inasmuch as some of 
the great articles of import are usually 
among the things in which speculative 
overtrading first shows itself. There 
is, therefore, in such periods, usually a 
great excess of imports over exports; 
and when the time comes at which 
these must be paid for, the exchanges 
become unfavourable, and gold flows 
out of the country. In what precise 
manner this efflux of gold takes effect 
on prices, depends on circumstances of 
which we shall presently speak more 
fully; but that its effect is to make 
them recoil downwards, is certain and 
evident. The recoil, once begun, gene¬ 
rally becomes a total rout, and the 
unusual extension of credit is rapidly 
exchanged for an unusual contraction 
of it. Accordingly, when credit has 
been imprudently stretched, and the 
speculative spirit carried to excess, the 
turn of the exchanges, and consequent 
pressure on the banks to obtain gold 
for exportation, are generally the 
proximate cause of the catastrophe. 
But these phenomena, though a con¬ 
spicuous accompaniment, are no essen¬ 
tial part, of the collapse of credit called 
a commercial crisis; which, as we 
formerly showed,* might happen to as 
great an extent, and is quite as likely 
to happen, in a country, if any such 
there were, altogether destitute of 
foreign trade. 


CHAPTER XXIII. 

OF THE RATE OF INTEREST. 


§ 1. The present seems the most 
proper place for discussing the circum¬ 
stances which determine the rate of 
interest. The interest of loans, being 
really a question of exchange value, 
falls naturally into the present division 

r.E. 


of our subject: and the two topics of 
Currency and Loans, though in them¬ 
selves distinct, are so intimately 
blended in the phenomena of what is 
called the money market, that it is im* 
* Supra, pp. 318—9. 

c c 







386 BOOK III. CHAPTER XXIII. § 2. 


possible to understand the one without 
the other, and in many minds the two 
subjects are mixed up in the most in¬ 
extricable confusion. 

In the preceding Book* we defined 
the relation in which interest stands to 
profit. We found that the gross profit 
of capital might be distinguished into 
three parts, which are respectively the 
remuneration for risk, for trouble, and 
for the capital itself, and may be 
termed insurance, wages of superin¬ 
tendence, and interest. After making 
compensation for risk, that is, after 
covering the average losses to which 
capital is exposed either by the general 
circumstances of society or by the 
hazards of the particular employment, 
there remains a surplus, which partly 
goes to repay the owner of the capital 
for his abstinence, and partly the em¬ 
ployer of it for his time and trouble. 
How much goes to the one and how 
much to the other, is shown by the 
amount of the remuneration which, 
when the two functions are separated, 
the owner of capital can obtain from 
the employer for its use. This is evi¬ 
dently a question of demand and 
supply. Nor have demand and supply 
any different meaning or effect in this 
case from what they have in all others. 
The rate of interest will be such as to 
equalize the demand for loans with the 
supply of them. It will be such, that 
exactly as much as some people are 
desirous to borrow at that rate, others 
shall be willing to lend. If there is 
more offered than demanded, interest 
will fall; if more is demanded than 
offered, it will rise ; and in both cases, 
to the point, at which the equation of 
supply and demand is re-established. 

Both the demand and supply of 
loans fluctuate more incessantly than 
any other demand or supply whatso¬ 
ever. The fluctuations in other things 
depend on a limited number of influ¬ 
encing circumstances; but the desire 
to borrow, and the willingness to lend, 
are more or less influenced by every 
circumstance which affects the state or 
prospects of industry or commerce, 
either generally or in any of their 
branches. The rate of interest, there- 
* Supra, book ii. ch. xv, § 1. 


fore, on good security, which alone wo 
have here to consider (for interest in 
which considerations of risk bear a part 
may swell to any amount) is seldom, 
in the great centres of money transac¬ 
tions, precisely the same for two days 
together; as is shown by the never- 
ceasing variations in the quoted prices 
of the funds and other negotiable secu¬ 
rities. Nevertheless, there must be, as 
in other cases of value, some rate 
which (in the language of Adam Smith 
and Ricardo) may be called the natural 
rate ; some rate about which the mar¬ 
ket rate oscillates, and to which it 
always tends to return. This rate 
partly depends on the amount of accu¬ 
mulation going on in the hands of 
persons who cannot themselves attend 
to the employment of their savings, 
and partly on the comparative taste 
existing in the community for the 
active pursuits of industry, or for the 
leisure, ease, and independence of an 
annuitant. 

§ 2. To exclude casual fluctuations, 
we will suppose commerce to be in a 
quiescent condition, no employment 
being unusually prosperous, and none 
particularly distressed. In these cir¬ 
cumstances, the more thriving pro¬ 
ducers and traders have their capital 
fully employed, and many are able to 
transact business to a considerably 
greater extent than they have capital 
for. These are naturally borrowers : 
and the amount which they desire to 
borrow, and can give security for, con¬ 
stitutes the demand for loans on ac¬ 
count of productive employment. To 
these must be added the loans required 
by Government, and by landowners, or 
other unproductive consumers who have 
good security to give. This constitutes 
the mass of loans for which there is an 
habitual demand. 

Now it is conceivable that there 
might exist, in the hands of persons 
disinclined or disqualified for engaging 
personally in business, a mass of capi¬ 
tal equal to, and even exceeding, this 
demand. In that case there would be 
an habitual excess of competition on 
the part of lenders, and the rate of in¬ 
terest would bear a low proportion to 




RATE OF 

the rate of profit. Interest would be 
forced down to the point which would 
either tempt borrowers to take a greater 
amount of loans than they had a 
reasonable expectation of being able to 
employ in their business, or would so 
discourage a portion of the lenders, as 
to make them either forbear to accu¬ 
mulate, or endeavour to increase their 
income by engaging in business on 
their own account, and incurring the 
risks, if not the labours, of industrial 
employment. 

On the other hand, the capital owned 
by persons who prefer lending it at 
interest, or whose avocations prevent 
them from personally superintending 
its employment, may be short of the 
habitual demand for loans. It may be 
in great part absorbed by the invest¬ 
ments afforded by the public debt and 
by mortgages, and the remainder may 
not be sufficient to supply the wants of 
commerce. If so, the rate of interest 
will be raised so high as in some way 
to re-establish the equilibrium. When 
there is only a small difference between 
interest and profit, many borrowers 
may no longer be willing to increase 
their responsibilities and involve their 
credit for so small a remuneration : or 
some who would otherwise have en¬ 
gaged in business, may prefer leisure, 
and become lenders instead of bor¬ 
rowers : or others, under the induce¬ 
ment of high interest and easy in¬ 
vestment for their capital, may re¬ 
tire from business earlier, and with 
smaller fortunes, than they otherwise 
would have done. Or, lastly, there is 
another process by which, in England 
and other commercial countries, a 
large portion of the requisite supply 
of loans is obtained. Instead of its 
being afforded by persons not in busi¬ 
ness, the affording it may itself become 
a business. A portion of the capital 
employed in trade may be supplied by 
a class of professional money lenders. 
These money lenders, however, must 
have more than a mere interest; they 
must have the ordinary rate of profit 
on their capital, risk and all other 
circumstances being allowed for. But 
it can never answer to any one who 
borrows for the purposes of his busi¬ 


INTEREST. 387 

ness, to pay a full profit for capital 
from which he will only derive a full 
profit: and money-lending, as an em¬ 
ployment, for the regular supply of 
trade, cannot, therefore, be carried on 
except by persons who, in addition to 
their own capital, can lend their credit, 
or, in other words, the capital of other 
people: that is, bankers, and persons 
(such as bill-brokers) who are virtually 
bankers, since they receive money in 
deposit. A bank which lends its notes 
lends capital which it borrows from 
the community, and for which it pays 
no interest. A bank of deposit lends 
capital which it collects from the com¬ 
munity in small parcels ; sometimes 
without paving any interest, as is the 
case with the London private bankers; 
and if, like the Scotch, the joint stock, 
and most of the country banks, it does 
pay interest, it still pays much less 
than it receives; for the depositors, 
who in any other way could mostly 
obtain for such small balances no 
interest worth taking any trouble for, 
are glad to receive even a little. 
Having this subsidiary resource, 
bankers are enabled to obtain, by 
lending at interest, the ordinary rate 
of profit on their own capital. In any 
other manner, money-lending could not 
be carried on as a regular mode of 
business, except upon terms on which 
none would consent to borrow but 
persons either counting on extraor¬ 
dinary profits, or in urgent need: un¬ 
productive consumers who have ex¬ 
ceeded their means, or merchants in 
fear of bankruptcy. The disposable 
capital deposited in banks; that re¬ 
presented by bank notes; the capital 
of bankers themselves, and that which 
their credit, in any way in which they 
use it, enables them to dispose of. 
these, together with the funds belong¬ 
ing to those who, either from necessity 
or pi-eference, live upon the interest of 
their property, constitute the general 
loan fund of the country; and the 
amount of this aggregate fund, when 
set against the habitual demands of 
producers and dealers, and those of 
the Government and of unproductive 
consumers, determines the permanent 
or average rate of interest; which 

G C 2 



388 BOOK III. CHAPTER XXIII. § 3. 


must always be sucli as to adjust 
these twoamounts to one another.* But 
while the whole of this mass of lent 
capital takes effect upon the permanent 
rate of interest, the fluctuations de¬ 
pend almost entirely upon the portion 
which is in the hands of bankers ; for 
it is that portion almost exclusively, 
which, being lent for short times only, 
is continually in the market seeking 
an investment. The capital of those 
who live on the interest of their own 
fortunes, has generally sought and 
found some fixed investment, such as 
the public funds, mortgages, or the 
bonds of public companies, which in¬ 
vestment, except under peculiar temp¬ 
tations or necessities, is not changed. 

§ 3. Fluctuations in the rate of 
interest arise from variations either in 
demand for loans, or in the supply. 
The supply is liable to variation, 
though less so than the demand. The 
willingness to lend is greater than 
usual at the commencement of a 
period of speculation, and much less 
than usual during the revulsion which 
follows. In speculative times, mone}’- 
lenders as well as other people are in¬ 
clined to extend their business by 
stretching their credit; they lend 
more than usual (just as other classes 
of dealers and producers employ more 
than usual) of capital which does not 
belong to them. Accordingly, these 
are the times when the rate of interest 
is low; though for this too (as we 
shall hereafter see) there are other 
causes. During the revulsion, on the 
contrary, interest always rises inor- 

* I do not include in the general loan fund 
of the country the capitals, large as they 
sometimes are, which are habitually em¬ 
ployed in speculatively buying and selling 
the public funds and other securities. It is 
true that all who buy securities add, for the 
time, to the general amount of money on loan, 
and lower, to that extent, the rate of interest. 
But as the persons I speak of buy only to sell 
again at a higher price, they are alternately 
in the position of lenders and of borrowers : 
their operations raise the rate of interest at 
one time, exactly as much as they lower it at 
another. Like all persons who buy and sell 
on speculation, their function is to equalize, 
not to raise or lower, the value of the com¬ 
modity. When they speculate prudently, 
they temper the fluctuations of price; when 
imprudently, they often aggravate them. 


dinately, because, while there is a’ 
most pressing need on the part of 
many persons to borrow, there is a 
general disinclination to lend. This 
disinclination, when at its extreme 
point, is called a panic. It occurs 
when a succession of unexpected fai¬ 
lures has created in the mercantile, 
and sometimes also in the non-mer- 
cantile public, a general distrust in. 
each other’s solvency; disposing every 
one not only to refuse fresh credit, 
except on very onerous terms, but to 
call in, if possible, all credit which he 
has already given. Deposits are with¬ 
drawn from banks; notes are re¬ 
turned on the issuers in exchange for 
specie; bankers raise their rate of 
discount, and withhold their customary 
advances; merchants refuse to renew 
mercantile bills. At such times the 
most calamitous consequences were 
formerly experienced from the attempt 
of the law to prevent more than a 
certain limited rate of interest from 
being given or taken. Persons who 
could not borrow at five per cent, had 
to pay, not six or seven, but ten or 
fifteen per cent, to compensate the 
lender for risking the penalties of the 
law: or had to sell securities or goods 
for ready money at a still greater 
sacrifice. 

In the intervals between commercial 
crises, there is usually a tendency in 
the rate of interest to a progressive 
decline, from the gradual process of 
accumulation; which process, in the 
great commercial countries, is suffi¬ 
ciently rapid to account for the almost 
periodical recurrence of these fits of 
speculation; since, when a few years 
have elapsed without a crisis, and 
no new and tempting channel for in- - 
vestment has been opened in the 
meantime, there is always found to 
have occurred in those few years so 
large an increase of capital seeking 
investment, as to have lowered con¬ 
siderably the rate of interest, whether 
indicated by the prices of securities or 
by the rate of discount on bills; and 
this diminution of interest tempts the 
possessors to incur hazards in hopes of 
a more considerable return. 

The rate of interest is, at times* 






RATE OF 

affected more or less permanently by 
circumstances, though not of frequent, 
yet of occasional occurrence, which 
tend to alter the proportion between 
the class of interest-receiving and that 
of profit-receiving capitalists. Two 
causes of this description, operating in 
contrary ways, have manifested them¬ 
selves of late years, and are now pro¬ 
ducing considerable effects in England. 
One is, the gold discoveries. The 
masses of the precious metals which 
are constantly arriving from the gold 
countries, are, it may safely be said, 
wholly added to the funds that supply 
the loan market. So great an addi¬ 
tional capital, not divided between the 
two classes of capitalists, but aggre¬ 
gated bodily to the capital of the 
interest-receiving class, disturbs the 
pre-existing ratio between the two, 
and tends to depress interest, relatively 
to profit. Another circumstance of still 
more recent date, but tending to the 
contrary effect, is the legalization of 
joint-stock associations with limited 
liability. The shareholders in these 
associations, dow so rapidly multiply¬ 
ing, are drawn almost exclusively from 
the lending class; from those who 
cither left their disposable fands in 
•deposit, to be lent out by bankers, or 
invested them in public or private secu¬ 
rities, and received the interest. Tc 
the extent of their shares in any of 
these companies (with the single ex¬ 
ception of banking companies) they 
have become traders on their own 
capital; they have ceased to be lenders, 
and have even, in most cases, passed 
over to the class of borrowers. Their 
subscriptions have been abstracted 
from the funds which feed the loan 
market, and they themselves have be¬ 
come competitors for a share of the 
remainder of those funds: of all which, 
the natural effect is a rise of interest. 
And it would not be surprising if, for 
a considerable time to come, the ordi¬ 
nary rate of interest in England should 
bear a higher proportion to the common 
rate of mercantile profit, than it has 
borne at any time since the influx of 
new gold set in.* 

* To the cause of augmentation in the rate 
of interest, mentioned in the text, must be 


INTEREST. 389 

The demand for loans varies much 
more largely than the supply, and em¬ 
braces longer cycles of years in its 
aberrations. A time of war, for ex¬ 
ample, is a period of unusual drafts on 
the loan market. The Government, at 
such times, generally incurs new loans, 
and as these usually succeed each other 
rapidly as long as the war lasts, the 
general rate of interest is kept higher 
in war than in peace, without reference 
to the rate of profit, and productive 
industry is stinted of its usual supplies. 
During part of the last French war, 
the Government could not borrow under 
six per cent, and of course all other 
borrowers had to pay at least as much. 
Nor does the influence of these loans 
altogether cease when the Government 
ceases to contract others; for those 
already contracted continue to afford 
an investment for a greatly increased 
amount of the disposable capital of the 
country, which if the national debt 
were paid off, would be added to the 
mass of capital seeking investment, and 
(independently of temporary disturb¬ 
ance) could not but, to some extent, 
permanently lower the rate of interest. 
The same effect on interest which is 
produced by Government loans for war 
expenditure, is produced by the sudden 
opening of any new and generally 
attractive mode of permanent invest¬ 
ment. The only instance of the kind 
in recent history on a scale comparable 
to that of the war loans, is the absorp¬ 
tion of capital in the construction of 
railways. This capital must have been 
principally drawn from the deposits in 
banks, or from savings which would 
have gone into deposit, and which were 

added another, forcibly insisted on by the 
author of an able article in the Edinburgh 
Eevietv for January 18G5; the increased and 
increasing willingness to send capital abroad 
for investment. Owing to the vastly aug¬ 
mented facilities of access to foreign coun¬ 
tries, and the abundant information inces¬ 
santly received from them, foreign invest¬ 
ments have ceased to inspire the terror that 
belongs to the unknown ; capital flows, with¬ 
out misgiving, to any place which affords an 
expectation of high profit; and the loan 
market of the whole commercial world is 
becoming rapidly one. The rate of interest, 
therefore, in the part of the world out of 
which capital most freely flows, cannot any 
longer remain so much inferior to the rate 
elsewhere, as it has hitherto been. 




BOOK III. CHAPTER XXIII. § 4. 


390 

destined to Be ultimately employed in 
buying securities from persons who 
would have employed the purchase 
money in discounts or other loans at 
interest: in either case, it was a draft 
on the general loan fund. It is, in 
fact, evident, that unless savings were 
made expressly to be employed in rail- 
way adventure, the amount thus em¬ 
ployed must have been derived either 
from the actual capital of persons in 
business, or from capital which would 
have been lent to persons in business. 
In the first case, the subtraction, by 
crippling their means, obliges them to 
be larger borrowers; in the second, it 
leaves less for them to borrow; in either 
case it equally tends to raise the rate 
of interest. 

§ 4. 1 have, thus far, considered 
loans, and the rate of interest, as a 
matter which concerns capital in gene¬ 
ral, in direct opposition to the popular 
notion, according to which it only con¬ 
cerns money. In loans, as in all other 
money transactions, I have regarded 
the money which passes, only as the 
medium, and commodities as the thing 
really transferred—the real subject of 
the transaction. And this is, in the 
main, correct: because the purpose for 
which, in the ordinary course of affairs, 
money is borrowed, is to acquire a pur¬ 
chasing power over commodities. In 
an industrious and commercial country, 
the ulterior intention commonly is, to 
employ the commodities as capital: 
but even in the case of loans for un¬ 
productive consumption, as those of 
spendthrifts, or of the Government, the 
amount borrowed is taken from a pre¬ 
vious accumulation, which would other¬ 
wise have been lent to carry on produc¬ 
tive industry; it is, therefore, so much 
subtracted from what may correctly be 
called the amount of loanable capital. 

There is, however, a not unfrequent 
case, in which the purpose of the bor¬ 
rower is different from what I have 
here supposed. He may borrow money, 
neither to employ it as capital nor to 
spend it unproductively, but to pay a 
previous debt. In this case, what he 
wants is not purchasing power, but 
legal tender, or something which a 


creditor will accept as equivalent to it. 
His need is specifically for money, not 
for commodities or capital. It is the 
demand arising from this cause, which 
produces almost all the great and sud¬ 
den variations of the rate of interest. 
Such a demand forms one of the ear¬ 
liest features of a commercial crisis. 
At such a pei’iod, many persons in 
business who have contracted engage¬ 
ments, have been prevented by a change 
of circumstances from obtaining in time 
the means on which they calculated for 
fulfilling them. These means they 
must obtain at any sacrifice, or submit 
to bankruptcy; and what they must 
have is money. Other capital, how¬ 
ever much of it they may possess, can¬ 
not answer the purpose unless money 
can first be obtained for it; while, on 
the contrary, without any increase of 
the capital of the country, a mere in¬ 
crease of circulating instruments of 
credit, (be they of as little worth for 
any other purpose as the box of one 
pound notes discovered in the vaults of 
the Bank of England during the panic 
of 1825) will effectually serve their 
turn, if only they are allowed to make 
use of it An increased issue of notes, 
in the form of loans, is all that is re¬ 
quired to satisfy the demand, and put 
an end to the accompanying panic. 
But although, in this case, it is not 
capital, or purchasing power, that the 
borrower needs, but money as money, 
it is not only money that is transferred 
to him. The money carries its pur¬ 
chasing power with it wherever it goes; 
and money thrown into the loan market 
really does, through its purchasing 
power, turn over an increased portion 
of the capital of the country into the 
direction of loans. Though money 
alonj* was wanted, capital passes; and 
it may still be said with truth that it 
is by an addition to loanable capital 
that the rise of the rate of interest is 
met and corrected. 

Independently of this, however, 
there is a real relation, which it is 
indispensable to recognise, between 
loans and money. Loanable capital 
is all of it in the form of money. 
Capital destined directly for produc¬ 
tion exists in many forms; but capital 





BATE OF 

destined for lending exists normally 
in tliat form alone. Owing to this 
circumstance, we should naturally ex¬ 
pect that among the causes which 
affect more or less the rate of interest, 
would he found not only causes which 
act through capital, but some causes 
which act, directly at least, only 
through money. 

The rate of interest bears no neces¬ 
sary relation to the quantity or value of 
the money in circulation. The perma¬ 
nent amount of the circulating medium, 
whether great or small, affects only 
prices; not the rate of interest. A 
depreciation of the currency, when it 
has become an accomplished fact, 
affects the rate of interest in no man¬ 
ner whatever. It diminishes indeed 
the power of money to buy commodi¬ 
ties, but not the power of money to 
buy money. If a hundred pounds 
will buy a perpetual annuity of four 
pounds a year, a depreciation which 
makes the hundred pounds worth only 
half as much as before, has precisely 
the same effect on the four pounds, 
and cannot therefore alter the relation 
between the two. The greater or 
smaller number of counters which 
must be used to express a given 
amount of real wealth, makes no dif¬ 
ference in the position or interests of 
lenders or borrowers, and therefore 
makes no difference in the demand 
and supply of loans. There is the 
same amount of real capital lent and 
borrowed; and if the capital in the 
hands of lenders is represented by a 
greater number of pounds sterling, the 
same greater number of pounds ster¬ 
ling will, in consequence of the rise of 
prices, be now required for the pur¬ 
poses to which the borrowers intend to 
apply them. 

But though the greater or less 
quantity of money makes in itself no 
difference in the rate of interest, a 
change from a less quantity to a 
greater, or from a greater to a less, 
may and does make a difference in it. 

Suppose money to be in process of 
depreciation, by means of an incon¬ 
vertible currency, issued by a govern¬ 
ment in payment of its expenses. 
This fact will in no way diminish the 


INTEBEST. 391 

demand for real capital on loan; but 
it will diminish the real capital loan¬ 
able, because, this existing only in the 
form of money, the increase of quan¬ 
tity depreciates it. Estimated in 
capital, the amount offered is less, 
while the amount required is the same 
as before. Estimated in currency, the 
amount offered is only the same as 
before, while the amount required, 
owing to the rise of prices, is greater. 
Either way, the rate of interest must 
rise. So that in this case increase of 
currency really affects the rate of inte¬ 
rest, but in the contrary way to that 
which is generally supposed; by rais¬ 
ing, not by lowering it. 

The reverse will happen as the 
effect of calling in, or diminishing in 
quantity, a depreciated currency. The 
money in the hands of lenders, in 
common with all other money, will be 
enhanced in value, that is, "there will 
be a greater amount of real capital 
seeking borrowers; while the real 
capital wanted by borrowers will be 
only the same as before, and the 
money amount less: the rate of inte¬ 
rest, therefore, will tend to fall. 

We thus see that depreciation, 
merely as such, while in process of 
taking place, tends to raise the rate of 
interest: and the expectation of fur¬ 
ther depreciation adds to this effect; 
because lenders who expect that their 
interest will be paid, and the principal 
perhaps redeemed, in a less valuable 
currency than they lent, of course re¬ 
quire a rate of interest sufficient to 
cover this contingent loss. 

But this effect is more than counter¬ 
acted by a contrary one, when the 
additional money is thrown into circu¬ 
lation not by purchases but by loans. 
In England, and in most other com¬ 
mercial countries, the paper currency 
in common use, being a currency pro¬ 
vided by bankers, is all issued in the 
way of loans, except the part employed 
in the purchase of gold and silver. 
The same operation, therefore, which 
adds to the currency also adds to the 
loans: the whole increase of currency 
in the first instance swells the loan 
market. Considered as an addition to 
loans it tends to lower interest, more 




392 BOOK III. CHAPTER XXIII. § 4. 


than in its character of depreciation it 
tends to raise it; for the former effect 
depends on the ratio which the new 
money hears to the money lent, while 
the latter depends on its ratio to all 
the money in circulation. An in¬ 
crease, therefore, of currency issued by 
banks, tends, while the process con¬ 
tinues, to bring down or to keep down 
the rate of interest. A similar effect 
is produced by the increase of money 
arising from the gold discoveries; 
almost the whole of which, as already 
noticed, is, when brought to Europe, 
added to the deposits in banks, and 
consequently to the amount of loans ; 
and when drawn out and invested 
in securities, liberates an equivalent 
amount of other loanable capital. The 
newly-arrived gold can only get itself 
invested, in any given state of busi¬ 
ness, by lowering the rate of interest; 
and as long as the influx continues, it 
cannot fail to keep interest lower than, 
all other circumstances being supposed 
the same, would otherwise have been 
the case. 

As the introduction of additional 
gold and silver which goes into the 
loan market, tends to keep down the 
rate of interest, so any considerable 
abstraction of them from the country 
invariably raises it; even when occur¬ 
ring in the course of trade, as in pay¬ 
ing for the extra importations caused 
by a bad harvest, or for the high-priced 
cotton which is, just now, imported 
from so many parts of the world. The 
money required for these payments is 
taken in the first instance from the 
deposits in the hands of bankers, and 
to that extent starves the fund that 
supplies the loan market. 

The rate of interest, then, depends, 
essentially and permanently, on the 
comparative amount of real capital 
offered and demanded in the way of 
loan ; but is subject to temporary dis¬ 
turbances of various sorts, from in¬ 
crease and diminution of the circu¬ 
lating medium; which derangements 
are somewhat intricate, and some¬ 
times in direct opposition to first ap¬ 
pearances. All these distinctions are 
veiled over and confounded, by the 
Unfortunate misapplication of language 


which designates the rate of interest 
by a phrase (“the value of money”) 
which properly expresses the purchas¬ 
ing power of the circulating medium. 
The public, even mercantile, habitu¬ 
ally fancies that ease in the money 
market, that is, facility of borrowing 
at low interest, is proportional to the 
quantity of money in circulation. Xot 
only, therefore, are bank notes sup¬ 
posed to produce effects as currency, 
which they only produce as loans, but 
attention is habitually diverted from 
effects similar in kind and much 
greater in degree, when produced by 
an action on loans which does not 
happen to be accompanied by any 
action on the currency. 

For example, in considering the 
effect produced by the proceedings of 
banks in encouraging the excesses of 
speculation, an immense effect is 
usually attributed to their issues of 
notes, but until of late hardly any 
attention was paid to the management 
of their deposits; though nothing is 
more certain than that their impru¬ 
dent extensions of credit take place 
more frequently by means of their 
deposits than of their issues. “ There 
is no doubt,” says Mr. Tooke,* “ that 
banks, whether private or joint stock, 
may, if imprudently conducted, minister 
to an undue extension of credit*for the 
purpose of speculations, whether in 
commodities, or in over-trading in ex¬ 
ports or imports, or in building or 
mining operations, and that they have 
so ministered not unfrequently, and in 
some cases to an extent ruinous to 
themselves, and without ultimate 
benefit to the parties to whose views 
their resources were made subser¬ 
vient.” But, “ supposing all the de¬ 
posits received by a banker to be in 
coin, is he not, just as much as the 
issuing banker, exposed to the impor¬ 
tunity of customers, whom it may be 
impolitic to refuse, for loans or dis¬ 
counts, or to be tempted by a high 
interest ? and may he not be induced 
to encroach so much upon his deposits 
as to leave him, under not improbable 
circumstances, unable to meet the de¬ 
mands of his depositors ? In what 
* Inquiry into the Currency Principle, ch. xiv. 




RATE OF 

respect, indeed, would the case of a 
banker in a perfectly metallic circula¬ 
tion, differ from that of a London 
banker at the present day ? He is not 
a creator of money, he cannot avail 
himself of his privilege as an issuer in 
aid of his other business, and yet there 
have been lamentable instances of Lon¬ 
don bankers issuing money in excess.” 

In the discussions, too, which have 
been for so many years carried on re¬ 
specting the operations of the Bank of 
England, and the effects produced by 
those operations on the state of credit, 
though for nearly half a century there 
never has been a commercial crisis 
which the Bank has not been strenu¬ 
ously accused either of producing or of 
aggravating, it has been almost uni¬ 
versally assumed that the influence of 
its acts was felt only through the 
amount of its notes in circulation, and 
that if it could be prevented from ex¬ 
ercising any discretion as to that one 
feature in its position, it would no longer 
have any power liable to abuse. This 
at least is an error which, after the 
experience of the year 1847, we may 
hope has been committed for the last 
time. During that year the hands of 
the Bank were absolutely tied, in its 
character of a bank of issue; but 
through its operations as a bank of de¬ 
posit it exercised as great an influence, 
or apparent influence, on the rate of 
interest and the state of credit, as at 
any former period; it was exposed to 
as vehement accusations of abusing 
that influence; and a crisis occurred, 
such as few that preceded it had 
equalled, and none perhaps surpassed, 
in intensity. 

§ 5. Before quitting the general 
subject of this chapter, I will make the 
obvious remark, that the rate of in¬ 
terest determines the value and price 
of all those saleable articles which are 
desired and bought, not for themselves, 
but for the income which they are ca¬ 
pable of yielding. The public funds, 
shares in joint-stock companies, and all 
descriptions of securities, are at a high 
price in proportion as the rate of in¬ 
terest is low. They are sold at the 
price which will give the market rate 


INTEREST. 393 

of interest on the purchase money, with 
allowance for all differences in the risk 
incurred, or in any circumstance of 
convenience. Exchequer bills, for ex¬ 
ample, usually sell at a higher price 
than consols, proportionally to the in¬ 
terest which they yield; because, 
though the security is the same, yet 
the former being annually paid off at 
par unless renewed by the holder, the 
purchaser (unless obliged to sell in a 
moment of general emergency), is in no 
danger of losing anything by the re-sale, 
except the premium he may have paid. 

The price of land, mines, and all 
other fixed sources of income, depends 
in like manner on the rate of interest. 
Land usually sells at a higher price, in 
proportion to the income afforded by it, 
than the public funds, not only because 
it is thought, even in this country, to 
be somewhat more secure, but because 
ideas of power and dignity are asso¬ 
ciated with its possession. But these 
differences are constant, or neax*ly so; 
and in the variations of price, land 
follows, cceterisimribus, the permanent 
(though of course not the daily) varia¬ 
tions of the rate of interest. When in¬ 
terest is low, land will naturally be 
dear ; when interest is high, land will 
be cheap. The last long war presented 
a striking exception to this rule, since 
the price of land as well as the rate of 
interest was then remarkably high. For 
this, however, there was a special 
cause. The continuance of a very high 
average price of corn for many years, 
had raised the rent of land even more 
than in proportion to the rise of in¬ 
terest ; and fall of the selling price of 
fixed incomes. Had it not been for 
this accident, chiefly dependent on the 
seasons, land must have sustained as 
great a depreciation in value as the 
public funds : which it probably would 
do, were a similar war to break out 
hereafter; to the signal disappoint¬ 
ment of those landlords and farmers 
who, generalizing from the casual cir¬ 
cumstances of a remarkable period, so 
long persuaded themselves that a state 
of war was peculiarly advantageous, 
and a state of peace disadvantageous, 
to wdiat they chose to call the interests 
of agriculture. 






394 


BOOK III. CHAPTER XXIV. 


1 . 


CHAPTER XXIV. 

4 

OF THE REGULATION OF A CONVERTIBLE PAPER CURRENCY. 


§ 1. The frequent recurrence during 
the last half century of the painful 
series of phenomena called a commer¬ 
cial crisis, has directed much of the at¬ 
tention both of economists and of prac¬ 
tical politicians to the contriving of 
expedients for averting, or at the least, 
mitigating its evils. And the habit 
which grew up during the era of the 
Bank restriction, of ascribing all al¬ 
ternations of high and low prices to the 
issues of banks, has caused inquirers 
in general to fix their hopes of success 
in moderating those vicissitudes, upon 
schemes for the regulation of bank 
notes. A scheme of this nature, after 
having obtained the sanction of high 
authorities, so far established itself in 
the public mind, as to be, with general 
approbation, converted into a law, at 
the renewal of the Charter of the Bank 
of England in 1844: and the regula¬ 
tion is still in force, though with a great 
abatement of its popularity, and with 
its prestige impaired by two temporary 
suspensions, on the responsibility of the 
executive, the earlier of the two little 
more than three years after its enact¬ 
ment. It is proper that the merits -of 
this ]dan for the regulation of a con¬ 
vertible bank note currency should be 
here considered. Before touching upon 
the practical provisions of Sir Robert 
Peel's Act of 1844, I shall briefly state 
the nature, and examine the grounds, 
of the theory on which it is founded. 

It is believed by many, that banks 
of issue universally, or the Bank of 
England in particular, have a power of 
throwing their notes into circulation, 
and thereby raising prices, arbitrarily ; 
that this power is only limited by the 
degree of moderation with which they 
think fit to exercise it; that when they 
increase their issues beyond the usual 
amount, the rise of prices, thus pro¬ 
duced, generates a spirit of speculation 
in commodities, which carries prices 
still higher, and ultimately causes a 


reaction and recoil, amounting in ex¬ 
treme cases to a commercial crisis; 
and that every such crisis which has 

occurred in this countrv within mer- 

•/ 

cantile memory, has been either ori¬ 
ginally produced by this cause, or 
greatly aggravated by it. To this ex¬ 
treme length the currency theory has 
not been carried by the eminent poli¬ 
tical economists who have given to a 
more moderate form of the same theory 
the sanction of their names. But I 
have not overstated the extravagance 
of the popular version; which is a re¬ 
markable instance to what lengths a 
favourite theory will hurry, not the 
closet students whoso competency in 
such questions is often treated with so 
much contempt, but men of the world 
and of business, who pique themselves 
on the practical knowledge which they 
have at least had ample opportunities 
of acquiring. Not only has this fixed 
idea of the currency as the prime agent 
in the fluctuations of price, made them 
shut their eyes to the multitude of cir¬ 
cumstances which, by influencing the 
expectation of supply, are the true 
causes of almost all speculations and of 
almost all fluctuations of price; but in 
order to bring about the chronological 
agreement required by their theory, 
between the variations of bank issues 
and those of prices, they have played 
such fantastic tricks with facts and 
dates as would be thought incredible, 
if an eminent practical authority had 
not taken the trouble of meeting 
them, on the ground of mere history, 
with an elaborate exposure. I refer, 
as all conversant with the subject 
must be aware, to Mr. Tooke’s His¬ 
tory of Prices. The result of Mr. 
Tooke’s investigations was thus stated 
by himself, in his examination before 
the Commons Committee on the Bank 
Charter question in 1832 ; and the evi¬ 
dences of it stand recorded in his 
book: “In point of fact, and histori- 



REGULATION OF CURRENCY. 


cally, as far as my researches have 
gone, in every signal instance of a rise 
or fall of prices, the rise or fall has 
preceded, and therefore could not he the 
effect of, an enlargement or contrac¬ 
tion of the hank circulation.” 

The extravagance of the currency 
theorists, in attributing almost every 
rise or fall of prices to an enlargement 
or contraction of the issues of hank 
notes, has raised up, by reaction, a 
theory the extreme opposite of the 
former, of which, in scientific discus¬ 
sion, the most prominent representa¬ 
tives are Mr. Tooke and Mr. Eullarton. 
This counter-theory denies to bank 
notes, so long as their convertibility is 
maintained, any power whatever of 
raising prices, and to banks any power 
of increasing their circulation, except 
as a consequence of, and in proportion 
to, an increase of the business to be 
done. This last statement is supported 
by the unanimous assurances of all the 
country bankers who have been ex¬ 
amined before successive Parliamentary 
Committees on the subject. They all 
bear testimony that (in the words of 
Mr. Eullarton*) “ the amount of their 
issues is exclusively regulated by the 
extent of local dealings and expendi¬ 
ture in their respective districts, fluc¬ 
tuating with the fluctuations of produc¬ 
tion and price, and that they neither 
can increase their issues beyond the 
limits which the range of such dealings 
and expenditure prescribes, without 
the certainty of having their notes im¬ 
mediately returned to them, nor dimi¬ 
nish them, but at an almost equal 
certainty of the vacancy being filled up 
from some other source.” From these 
premises it is argued by Mr. Tooke 
and Mr. Fullarton, that bank issues, 
since they cannot be increased in 
amount unless there be an increased 
demand, cannot possibly raise prices; 
cannot encourage speculation, nor oc¬ 
casion a commercial crisis; and that 
the attempt to guard against that evil 
by an artificial management of the 
issue of notes, is of no effect for the 
intended purpose, and liable to produce 
other consequences extremely calami¬ 
tous. 

* Regulation of Currencies, p. 85, 


395 

§ 2. As much of this doctrine as 
rests upon testimony, and not upon in¬ 
ference, appears to me incontrovertible. 
I give complete credence to the asser¬ 
tion of the country bankers, very clearly 
and correctly condensed into a small 
compass in the sentence just quoted 
from Mr. Fullarton. I am convinced 
that they cannot possibly increase their 
issue of notes in any other circum¬ 
stances than those which are there 
stated. I believe, also, that the theory, 
grounded by Mr. Fullarton upon this 
fact, contains a large portion of truth, 
and is far nearer to being the expres¬ 
sion of the whole truth than any form 
whatever of the currency theory. 

There are two states of the markets: 
one which may be termed the quiescent 
state, the other the expectant, or 
speculative state. The first is that in 
which there is nothing tending to en¬ 
gender in any considerable portion of 
the mercantile public a desire to extend 
their operations. The producers pro¬ 
duce and the dealers purchase only 
their usual stocks, having no expecta¬ 
tion of a more than usually rapid vent 
for them. Each person transacts his 
ordinary amount of business and no 
more, or increases it only in corre¬ 
spondence with the increase of his 
capital or connexion, or with the gra¬ 
dual growth of the demand for his 
commodity, occasioned by the public 
prosperity. Not meditating any un¬ 
usual extension of their own operations, 
producers and dealers do not need 
more than the usual accommodation 
from bankers and other money lenders; 
and as it is only by extending their 
loans that bankers increase their issues, 
none but a momentary augmentation 
of issues is in these circumstances 
possible. If at a certain time of the 
year a portion of the public have larger 
payments to make than at other times, 
or if an individual, under some peculiar 
exigency, requires an extra advance, 
they may apply for more bank notes, 
and obtain them; but the notes will no 
more remain in circulation, than the 
extra quantity of Bank of England 
notes which are issued once in every 
three months in payment of the divi¬ 
dends. The person to whom, after 



BOOK III. CHAPTER XXIV. § 2. 


396 

being borrowed, the notes are paid 
away, lias no extra payments to make, 
and no peculiar exigency, and he keeps 
them by him unused, or sends them 
into deposit, or repays with them a 
previous advance made to him by some 
banker: in any case he does not buy 
commodities with them, since by the 
supposition there is nothing to induce 
him to lay in a larger stock of com¬ 
modities than before. Even if we 
suppose, as we may do, that bankers 
create an artificial increase of the de¬ 
mand for loans, by offering them below 
the market rate of interest, the notes 
they issue will not remain in circula¬ 
tion ; for when the borrower, having 
completed the transaction for which he 
availed himself of them, has paid them 
away, the creditor or dealer who re¬ 
ceives them, having no demand for the 
immediate use of an extra quantity of 
notes, sends them into deposit. In 
this case, therefore, there can be no 
addition, at the discretion of bankers, 
to the general circulating medium: 
any increase of their issues either 
comes back to them, or remains idle in 
the hands of the public, and no rise 
takes place in prices. 

But there is another state of the 
markets, strikingly contrasted with the 
preceding, and to this state it is not so 
obvious that the theory of Mr. Tooke 
and Mr. Fullarton is applicable; 
namely, when an impression prevails, 
whether well founded or groundless, 
that the supply of one or more great 
articles of commerce is likely to fall 
short of the ordinary consumption. In 
such circumstances all persons con¬ 
nected with those commodities desire 
to extend their operations. The pro¬ 
ducers or importers desire to produce 
or import a larger quantity, speculators 
desire to lay in a stock in order to 
profit by the expected rise of price, 
and holders of the commodity desire 
additional advances to enable them to 
continue holding. All these classes 
are disposed to make a more than 
ordinary use of their credit, and to this 
desire it is not denied that bankers 
very often unduly administer. Effects 
of the same kind may be produced by 
anything which, exciting more than 


usual hopes of profit, gives increased 
briskness to business: for example, a 
sudden foreign demand for commodities 
on a large scale, or the expectation of 
it; such as occurred on the opening of 
Spanish America to English trade, and 
has occurred on various occasions in 
the trade with the United States. 
Such occurrences produce a tendency 
to a rise of price in exportable articles, 
and generate speculations, 'sometimes 
of a reasonable, and (as long as a large 
proportion of men in business prefer 
excitement to safety) frequently of an 
irrational or immoderate character. 
In such cases there is a desire in the 
mercantile classes, or in some portion 
of them, to employ their credit, in a 
more than usual degree, as a power of 
purchasing. This is a state of business 
which, when pushed to an extreme 
length, brings on the revulsion called 
a commercial crisis ; and it is a known 
fact that such periods of speculation 
hardly ever pass off without having 
been attended, during some part of 
their progress, by a considerable in¬ 
crease of bank notes. 

To this, however, it is replied by 
Mr. Tooke and Mr. Fullarton, that the 
increase of the circulation always fol¬ 
lows, instead of preceding, the rise of 
prices, and is not its cause, but its 
effect. That in the first place, the 
speculative purchases by which prices 
are raised, are not effected by bank 
notes but by cheques, or still more 
commonly on a simple book credit: and 
secondly, even if they were made with 
bank notes borrowed for that express 
purpose from bankers, the notes, after 
being used for that purpose, would, if 
not wanted for current transactions, be 
returned into deposit by the persons 
receiving them. In this 1 fully concur, 
and I regard it as proved, both scienti¬ 
fically and historically, that during the 
ascending period of speculation, and as 
long as it is confined to transactions 
between dealers, the issues of bank 
notes are seldom materially increased, 
nor contribute anything to the specula¬ 
tive rise of prices. It seems to me, 
however, that this can no longer be 
affirmed when speculation has pro¬ 
ceeded so far as to reach the producers. 



REGULATION OF CURRENCY. 


Speculative orders given by merchants 
to manufacturers induce them to extend 
their operations, and to become appli¬ 
cants to bankers for increased advances, 
which, if made in notes, are not paid 
away to persons who return them into 
deposit, but are partially expended in 
paying wages, and pass into the va¬ 
rious channels of retail trade,where they 
become directly effective in producing 
a further rise of prices. I cannot but 
think that this employment of bank 
notes must have been powerfully opera¬ 
tive on prices at the time when notes 
of one and two pounds value were per¬ 
mitted by law. Admitting, however, 
that the prohibition of notes below five 
pounds has now rendered this part of 
their operation comparatively insignifi¬ 
cant, by greatly limiting their applica¬ 
bility to the payment of wages, there 
is another form of their instrumentality 
which comes into play in the later 
stages of speculation, and which forms 
the principal argument of the more 
moderate supporters of the currency 
theory. Though advances by bankers 
are seldom demanded for the purpose 
of buying on speculation, they are 
largely demanded by unsuccessful 
speculators for the purpose of holding 
on; and the competition of these specu¬ 
lators for a share of the loanable capital, 
makes even those who have not specu¬ 
lated, more dependent than before on 
bankers for the advances they require. 
Between the ascending period of specu¬ 
lation and the revulsion, there is an 
inteiwal, extending to weeks and some¬ 
times months, of struggling against a 
fall. The tide having shown signs of 
turning, the speculative holders are 
unwilling to sell in a falling market, 
and in the meantime they require funds 
to enable them to fulfil even their ordi¬ 
nary engagements. It is this stage 
that is ordinarily marked by a con¬ 
siderable increase in the amount of the 
bank note circulation. That such an 
increase does usually take place, is 
denied by no one. And I think it must 
be admitted that this increase tends 
to prolong the duration of the specula¬ 
tions; that it enables the speculative 
prices to be kept up for some time after 
they would otherwise have collapsed; 


397 

and therefore prolongs and increases 
the drain of the precious metals for 
exportation, which is a leading feature 
of this stage in the progress of a com¬ 
mercial crisis: the continuance of 
which drain at last endangering the 
power of the banks to fulfil their en¬ 
gagement of paying their notes on 
demand, they are compelled to contract 
their credit more suddenly and severely 
than would have been necessary if they 
had been prevented from propping up 
speculation by increased advances, after 
the time when the recoil had become 
inevitable. 

§ 3. To prevent this retardation of 
the recoil, and ultimate aggravation of 
its severity, is the object of the scheme 
for regulating the currency, of which 
Lord Overstone, Mr. Norman, and 
Colonel Torrens, were the first pro¬ 
mulgators, and which has, in a slightly 
modified form, been enacted into law.* 

* I think myself justified in affirming that 
the mitigation of commercial revulsions is 
the real, and only serious, purpose of the Act 
of 1844. I am quite aware that its sup¬ 
porters insist (especially since 1847) on its 
supreme efficacy in “ maintaining the con¬ 
vertibility of the Bank note.” But 1 must 
be excused for not attaching any serious im¬ 
portance to this one among its alleged merits. 
The convertibility of the Bank note was 
maintained, and would have continued to be 
maintained, at whatever cost, under the old 
system. As was well said by Lord Over¬ 
stone in his Evidence, the Bank can always, 
by a sufficiently violent action on credit, 
save itself at the expense of the mercantile 
public. That the Act of 1844 mitigates the 
violence of that process, is a sufficient claim 
to prefer in its behalf. Besides, if we sup¬ 
pose such a degree of mismanagement on the 
part of the Bank, as, were it not for the Act, 
would endanger the continuance of con¬ 
vertibility, the same (or a less) degree of 
mismanagement, practised under the Act, 
would suffice to pi-oduce a suspension oi’ 
payments by the Banking Department; an 
event which the compulsory separation of 
the two departments brings much nearer to 
possibility than it was before, and which, 
involving as it ivould the probable stoppage 
of every private banking establishment in 
London, and perhaps also the non-payment 
of the dividends to the national creditor, 
would be a far greater immediate calamity 
than a brief interruption of the converti¬ 
bility of the note ; insomuch that, to enable 
the Bank to resume payment of its deposits, 
no Government would hesitate a moment to 
suspend payment of the notes, if suspension- 
of the Act of 1844 proved insufficient. 



BOOK III. CHAPTER XXIV. § 3. 


398 

According to tlie scheme in its origi¬ 
nal purity, tlie issue of promissory 
notes for circulation was to be confined 
to one body. In the form adopted by 
Parliament, all existing issuers were 
permitted to retain this privilege, but 
none were to be thereafter admitted to 
it, even in the place of those who might 
discontinue their issues: and, for all 
except the Bank of England, a maxi¬ 
mum of issues was prescribed, on a 
scale intentionally low. To the Bank 
of England no maximum was fixed for 
the aggregate amount of its notes, but 
only for the portion issued on securi¬ 
ties, or in other words, on loan. These 
were never to exceed a certain limit, 
fixed in the first instance at fourteen 
millions.* All issues beyond that 
amount must be in exchange for bul¬ 
lion ; of which the Bank is bound to 
purchase, at a trifle below the Mint 
valuation, any quantity which is offered 
to it, giving its notes in exchange. In 
regard, therefore, to any issue of notes 
beyond the limit of fourteen millions, 
the Bank is purely passive, having no 
function but the compulsory one of 
giving its notes for gold at 3 1. 11s. 9 d., 
and gold for its notes at 3 1. 17 s. lOgfZ., 
whenever and by whomsoever it is 
called upon to do so. 

The object for which this mechanism 
is intended is, that the bank note cur¬ 
rency may vary in its amount at the 
exact times, and in the exact degree, 
in which a purely metallic currency 
would vary. And the precious metals 
being the commodity that has hitherto 
approached nearest to that invariability 
in all the circumstances influencing 
value, which fits a commodity for being 
adopted as a medium of exchange, it 
seems to be thought that the excel¬ 
lence of the Act of 1844 is fully made 
out, if under its operation the issues 
conform in all their variations of quan- 

* A conditional increase of this maximum 
is permitted, but only when by arrangement 
with any country bank the issues of that 
bank are discontinued, and Bank of England 
notes substituted; and even then the in¬ 
crease is limited to two-thirds of the amount 
of the country notes to be thereby superseded. 
Under this provision, the amount of notes 
which the Bank of England is now at 
liberty to issue against securities, is rather 
under fourteen and a half millions. 


tity, and therefore, as is inferred, of 
value, to the variations which would 
take place in a currency wholly me¬ 
tallic. 

Now, all reasonable opponents of 
the Act, in common with its sup¬ 
porters, acknowledge as an essential 
requisite of any substitute for the 
precious metals, that it should con¬ 
form exactly in its permanent value 
to a metallic standard. And they say, 
that so long as it is convertible into 
specie on demand, it does and must so 
conform. But when the value of a 
metallic or of any other currency is 
spoken of, there are two points to be 
considered ; the permanent or average 
value, and the fluctuations. It is to 
the permanent value of a metallic 
currency, that the value of a paoer 
currency ought to conform. But there 
is no obvious reason why it should be 
required to conform to the fluctuations 
too. The only object of its conform¬ 
ing at all, is steadiness of value; and 
with respect to fluctuations the sole 
thing desirable is that they should be 
the smallest possible. Now the fluctu¬ 
ations in the value of the currency 
are determined, not by its quantity, 
whether it consist of gold or of paper, 
but by the expansions and contractions 
of credit. To discover, therefore, what 
currency will conform the most nearly 
to the permanent value of the precious 
metals, we must find under what cur¬ 
rency the variations in credit are least 
frequent and least extreme. Now-, 
whether this object is best attained 
by a metallic currency (and therefore 
by a paper currency exactly conform¬ 
ing in quantity to it) is precisely the 
question to be decided. If it should 
prove that a paper currency which 
follows all the fluctuations in quantity 
of a metallic, leads to more violent re¬ 
vulsions of credit than one which is 
not held to this rigid conformity, it 
will follow that the currency which 
agrees most exactly in quantity with 
a metallic currency is not that which 
adheres closest to its value ; that is to 
say, its permanent value, with which 
alone agreement is desirable. 

Whether this is really the case or 
not we will now inquire. And first, 




REGULATION OF CURRENCY. 


let us consider whether the Act effects 
the practical object chiefly relied on 
in its defence by the more sober of its 
advocates, that of arresting specula¬ 
tive extensions of credit at an earlier 
period, with a less drain of gold, and 
consequently by a milder and more 
gradual process. I think it must be 
admitted that to a certain degree it is 
successful in this object. 

I am aware of what may be urged, 
and reasonably urged, in opposition to 
this opinion. It may be said, that 
when the time arrives at which the 
hanks are pressed for increased ad¬ 
vances to enable speculators to fulfil 
their engagements, a limitation of the 
issue of notes will not prevent the 
banks, if otherwise willing, from mak¬ 
ing these advances; that they have 
still their deposits as a source from 
which loans may be made beyond the 
point which is consistent with pru¬ 
dence as bankers; and that even if 
they refused to do so, the only effect 
would be, that the deposits themselves 
would be drawn out to supply the 
wants of the depositors; which would 
be just as much an addition to the 
bank notes and coin in the hands of 
the public, as if the notes themselves 
were increased. This is true, and is a 
sufficient answer to those who think 
that the advances of banks to prop up 
failing speculations are objectionable 
chiefly as an increase of the currency. 
But the mode in which they are really 
objectionable, is as an extension of 
credit. If, instead of increasing their 
discounts, the banks allow their de¬ 
posits to be drawn out, there is the 
same increase of currency (for a short 
time at least) but there is not an in¬ 
crease of loans, at the time when there 
ought to be a diminution. If they do 
increase their discounts, not by means 
of notes, but at the expense of the 
deposits alone, their deposits (properly 
so called) are definite and exhaustible, 
while notes may be increased to any 
amount, or, after being returned, may 
be reissued without limit. It is true 
that a bank, if willing to add inde¬ 
finitely to its liabilities, has the power 
of making its nominal deposits as un¬ 
limited a fund as its issues could be; 


399 

it has only to make its advances in 
a book credit, which is creating de¬ 
posits out of its own liabilities, the 
money for which it has made itself 
responsible becoming a deposit in its 
hands to be drawn against by cheques ; 
and the cheques, when drawn, may be 
liquidated (either at the same bank 
or at the clearing house) without the 
aid of notes, by a mere transfer of 
credit from one account to another. 
I apprehend it is chiefly in this way 
that undue extensions of credit, in 
periods of speculation, are commonly 
made. But the banks are not likely 
to persist in this course when the tide 
begins to turn. It is not when their 
deposits have already begun to flow 
out, that they are likely to create 
deposit accounts which represent, 
instead of funds placed in their hands, 
fresh liabilities of their own. But 
experience proves that extension of 
credit in the form of notes goes on long 
after the recoil from over-speculation 
has commenced. When this mode of 
resisting the revulsion is made impos¬ 
sible, and deposits and book credits are 
left as the only source from which 
undue advances can be made, the rate 
of interest is not so often, or so long, 
prevented from rising, after the diffi¬ 
culties consequent on excess of specu¬ 
lation begin to be felt. On the con¬ 
trary, the necessity which the banks 
feel of diminishing their advances to 
maintain their solvency, when they 
find their deposits flowing out, and 
cannot supply the vacant place by 
their own notes, accelerates the rise 
of the rate of interest. Speculative 
holders are therefore obliged to sub¬ 
mit earlier to that loss by resale, 
which could not have been prevented 
from coming on them at last: the 
recoil of prices and collapse of general 
credit take place sooner. 

To appreciate the effect which this 
acceleration of the crisis has in miti¬ 
gating its intensity, let us advert 
more particularly to the nature and 
effects of that leading feature in the 
period just preceding the collapse, the 
drain of gold. A rise of prices pro¬ 
duced by a speculative extension of 
credit, even when bank notes have not 



BOOK III. CHAPTER XXIV. § 4. 


400 

been the instrument, is not the less 
effectual (if it lasts long enough) in 
turning the exchanges : and when the 
exchanges have turned from this cause, 
they can only be turned back, and the 
drain of gold stopped, either by a fall 
of prices or by a rise of the rate of 
interest. A fall of prices will stop it 
by removing the cause which produced 
it, and by rendering goods a more ad¬ 
vantageous remittance than gold, even 
for paying debts already due. A rise 
of the rate of interest, and consequent 
fall of the prices of securities, will 
accomplish the purpose still more ra¬ 
pidly, by inducing foreigners, instead 
of taking away the gold which is due 
to them, to leave it for investment 
within the country, and even send 
gold into the country to take ad¬ 
vantage of the increased rate of in¬ 
terest. Of this last mode of stopping 
a drain of gold, the year 1847 afforded 
signal examples. But until one of 
these two things take3 place—until 
either prices fall, or the rate of 
interest rises—nothing can possibly 
arrest, or even moderate, the efflux of 
gold. Now, neither will prices fall 
nor interest rise, so long as the un¬ 
duly expanded credit is upheld by the 
continued advances of bankers. It is 
well known that when a drain of gold 
has set in, even if bank notes have 
not increased in quantity, it is upon 
them that the contraction first falls, 
the gold wanted for exportation being 
always obtained from the Bank of 
England in exchange for its notes. 
But under the system which pre¬ 
ceded 1844, the Bank of England, 
being subjected, in common with 
other banks, to the importunities for 
fresh advances which are character¬ 
istic of such a time, could, and often 
did, immediately re-issue the notes 
which had been returned to it in 
exchange for bullion. It is a great 
error, certainly, to suppose that the 
mischief of this re-issue chiefly con¬ 
sisted in preventing a contraction of 
the currency. It was, however, quite 
as mischievous as it has ever been 
supposed to be. As long as it lasted, 

. the efflux of gold could not cease, 
since neither would prices fall nor 


interest rise while these advances con¬ 
tinued. Prices, having risen without 
any increase of bank notes, could well 
have fallen without a diminution of 
them; but having risen in conse¬ 
quence of an extension of credit, they 
could not fall without a contraction of 
it. As long, therefore, as the Bank of 
England and the other banks per¬ 
severed in this course, so long gold 
continued to flow out, until so little 
was left that the Bank of England,, 
being in danger of suspension of pay¬ 
ments, was compelled at last to con¬ 
tract its discounts so greatly and' 
suddenly as to produce a much more 
extreme variation in the rate of in¬ 
terest, inflict much greater loss and 
distress on individuals, and destroy a 
much greater amount of the ordinary 
credit of the country, than any real 
necessity required. 

I acknowledge, (and the experience 
of 1847 has proved to those who over¬ 
looked it before,) that the mischief 
now described, may be wrought, and 
in large measure, by the Bank of 
England, through its deposits alone. 
It may continue or even increase its- 
discounts and advances, when it ought 
to contract them ; with the ultimate 
effect of making the contraction much 
more severe and sudden than neces¬ 
sary. I cannot but think, however, 
that banks which commit this error 
with their deposits, would commit it 
still more if they were at liberty to 
make increased loans with their issues 
as well as their deposits. I am com¬ 
pelled to think that the being re¬ 
stricted from increasing their issues, is 
a real impediment to their making 
those advances which arrest the tide 
at its turn, and make it rush like a 
torrent afterwards : and when the Act 
is blamed for interposing obstacles at 
a time when not obstacles but facilities 
are needed, it must in justice receive- 
credit for interposing them when they 
are an acknowledged benefit. In this 
particular, therefore, I think it cannot 
be denied, that the new system is a 
real improvement upon the old. 

§ 4. But however this may be, it 
seems to me certain that these ad- 



REGULATION 

vantages, 'whatever value may be 
put on them, are purchased by still 
greater disadvantages. 

In the first place, a large extension 
of credit by bankers, though most 
hurtful when, credit being already in 
an inflated state, it can only serve to 
retard and aggravate the collapse, is 
most salutary when the collapse has 
•come, and when credit instead of being 
in excess is in distressing deficiency, 
and iucreased advances by bankers, 
instead of being an addition to the 
ordinary amount of floating credit, 
serve to replace a mass of other credit 
which has been suddenly destroyed. 
Antecedently to 1844, if the Bank of 
England occasionally aggravated the 
severity of a commercial revulsion by 
rendering the collapse of credit more 
tardy and thence more violent than 
necessary, it in return rendered in¬ 
valuable services during the revulsion 
itself, by coming forward with ad¬ 
vances to support solvent firms, at a 
time when all other paper and almost 
all mercantile credit had become com¬ 
paratively valueless. This service was 
eminently conspicuous in the crisis of 
1825-6, the severest probably ever 
experienced ; during which the Bank 
increased what is called its circula¬ 
tion by many millions, in advances to 
those mercantile firms of whose ulti¬ 
mate solvency it felt no doubt; ad¬ 
vances which if it had been obliged to 
withhold, the severity of the crisis 
would have been still greater than it 
was. If the Bank, it is justly re¬ 
marked by Mr. Fullarton,* complies 
with such applications, “it must 
comply with them by an issue of notes, 
for notes constitute the only instru¬ 
mentality through which the Bank is 
in the practice of lending its credit. 
But those notes are not intended to 
circulate, nor do they circulate. There 
is no more demand for circulation than 
there w 7 as before. On the contrary, 
the rapid decline of prices which the 
case in supposition presumes, would 
necessarily contract the demand for 
circulation. The notes would either 
be returned to the Bank of England, 
as last as they were issued, in the 
* P.106. 


OF CURRENCY. 401 

shape of deposits, or would be locked up 
in the drawers of the private London 
bankers, or distributed by them to 
their correspondents in the country, 
or intercepted by other capitalists, who, 
during the fervour of the previous 
excitement, had contracted liabilities 
which they might be imperfectly pre¬ 
pared on the sudden to encounter. In 
such emergencies, every man con¬ 
nected with business, who has been 
trading on other means than his own, 
is placed on the defensive, and his 
whole object is to make himself as 
strong as possible, an object which 
cannot be more effectually answered 
than by keeping by him as large a 
reserve as possible in paper which the 
law has made a legal tender. The 
notes themselves never find their way 
into the produce market; and if they 
at all contribute to retard” (or, as I 
should rather say, to moderate) “ the 
fall of prices, it is not by promoting in 
the slightest degree the effective de¬ 
mand for commodities, not by enabling 
consumers to buy more largely for 
consumption, and so giving briskness 
to commerce, but by a process pre¬ 
cisely the reverse, by enabling the 
holders of commodities to hold on, by 
obstructing traffic and repressing con¬ 
sumption.” 

The opportune relief thus afforded to 
credit, during the excessive contraction 
which succeeds to an undue expansion, 
is consistent with the principle of the 
new system ; for an extraordinary con¬ 
traction of credit, and fall of prices, 
inevitably draw gold into the country, 
and the principle of the system is that 
the bank-note currency shall be per¬ 
mitted, and even compelled, to enlarge 
itself, in all cases in which a metallic 
currency would do the same. But, 
what the principle of the law would 
encourage, its provisions in this in¬ 
stance preclude, by not suffering the 
increased issues to take place until the 
gold has actually arrived; which is 
never until the worst part of the crisis 
is past, and almost all the losses and 
failures attendant on it are consum¬ 
mated. The machinery of the system 
withholds, until for many purposes it 
comes too late, the very medicine 
' D D 


P.E. 




402 BOOK III. CHAPTER XXIV. § 4. 


which the theory of the system pre¬ 
scribes as the appropriate remedy.* 

This function of banks in filling up 
the gap made in mercantile credit by 
the consequences of undue speculation 
and its revulsion, is so entirely indis¬ 
pensable, that if the Act of 1844 con¬ 
tinues unrepealed, there can' be no 
difficulty in foreseeing that its pro¬ 
visions must be suspended, as they 
were in 1847, in every period of great 
commercial difficulty, as soon as the 
crisis has really and completely set in.f 
Were this all, there would be no abso¬ 
lute inconsistency in maintaining the 
restriction as a means of preventing a 
crisis, and relaxing it for the purpose 
of relieving one. But there is another 
objection, of a still more radical and 
comprehensive character, to the new 
system. 

Professing, in theory, to require that 
a paper currency shall vary in its 
amount in exact conformity to the 
variations of a metallic currency, it 
provides, in fact, that in every case of 
an efflux of gold, a corresponding dimi¬ 
nution shall take place in the quantity 
of bank notes; in other words, that 
every exportation of the precious 
metals shall be virtually drawn from 
the circulation ; it being assumed that 
this would be the case if the currency 
were wholly metallic. This theory, 
and these practical arrangements, are 
adapted to the case in which the drain 
of gold originates in a rise of prices 
produced by an undue expansion of 
currency or credit; but they are 
adapted to no case beside. 

When the efflux of gold is the last 

* True, the Bank is not precluded from 
making increased advances from its deposits, 
which are likely to be of unusually large 
amount, since, at these periods, every one 
leaves his money in deposit in order to have 
it within call. But, that the deposits are not 
always sufficient, was conclusively proved in 
1847, when the Bank stretched to the very 
utmost the means of relieving commerce 
which its deposits afforded, without allaying 
the panic, which however ceased at once 
when the Government decided on suspending 
the Act. 

f This prediction was verified on the very 
next occurrence of a commercial crisis, in 
1857; when Government were again under 
the necessity of suspending, on their own re¬ 
sponsibility, the provisions of the Act. 


stage of a series of effects arising from 
an increase of the currency, or from an 
expansion of credit tantamount in its 
effect on prices to an increase of cur¬ 
rency, it is in that case a fair assump¬ 
tion that in a purely metallic system 
the gold exported would be drawn from 
the currency itself; because such a 
drain, being in its nature unlimited, 
will necessarily continue as long as 
currency and credit are undiminislied. 
But an exportation of the precious 
metals often arises from no causes 
affecting currency or credit, but simply 
from an unusual extension of foreign 
payments, arising either from the state 
of the markets for commodities, or from 
some circumstance not commercial. 
In this class of causes, four, of power¬ 
ful operation, are included, of each of 
which the last fifty years of English 
history afford repeated instances. The 
first is that of an extraordinary foreign 
expenditure by government, either 
political or military; as in the revolu- 
tionai-y war, and, as long as it lasted, 
during the late war with Russia. The 
second is the case of a large exporta¬ 
tion of capital for foreign investment; 
such as the loans and mining opera¬ 
tions which partly contributed to the 
crisis cf 1825, and the American 
speculations which were the principal 
cause of the crisis of 1839. The third 
is a failure of crops in the countries 
which supply the raw material of im¬ 
portant manufactures; such as the 
cotton failure in America, which com¬ 
pelled England, in 1847, to incur un¬ 
usual liabilities for the purchase of 
that commodity at an advanced price. 
The fourth is a bad harvest, and a 
great consequent importation of food ; 
of which the years 1846 and 1847 pre¬ 
sented an example surpassing all ante¬ 
cedent experience. 

In none of these cases, if the cur¬ 
rency were metallic, would the gold or 
silver exported for the purposes in 
question be necessarily, or even pro¬ 
bably, drawn wholly from the circula¬ 
tion. It would be drawn from the 
hoards, which under a metallic cur¬ 
rency always exist to a very large 
amount; in uncivilized countries, in 
the hands of all who can afford it; in 





REGULATION OF CURRENCY. 


civilized countries chiefly in the form 
of bankers’ reserves. Mr. Tooke, in 
his “ Inquiry into the Currency Prin¬ 
ciple,” bears testimony to this fact; 
but it is to Mr. Fullarton that the 
public are indebted for the clearest and 
most satisfactory elucidation of it. As 
I am not aware that this part of the 
theory of currency has been set forth 
by any other writer with anything like 
the same degree of completeness, I 
shall quote somewhat largely from this 
able production. 

“ No person who has ever resided in 
an Asiatic country, where hoarding is 
carried on to a far larger extent in 
proportion to the existing stock of 
wealth, and where the practice has 
become much more deeply engrafted 
in the habits of the people, by tradi¬ 
tionary apprehensions of insecurity and 
the difficulty of finding safe and remu¬ 
nerative investments, than in any 
European community—no person who 
has had personal experience of this 
state of society, can be at a loss to re¬ 
collect innumerable instances of large 
metallic treasures extracted in times 
of pecuniary difficulty from the coffers 
of individuals by the temptation of a 
high rate of interest, and brought in 
aid of the public necessities, nor, on 
the other hand, of the facility with 
which those treasures have been ab¬ 
sorbed again, when the inducements 
which had drawn them into light were 
no longer in operation. In countries 
more advanced in civilization and 
wealth than the Asiatic principalities, 
and where no man is in fear of attract¬ 
ing the cupidity of power by an exter¬ 
nal display of riches, but where the 
interchange of commodities is still 
almost universally conducted through 
the medium of a metallic circulation, 
as is the case with most of the com¬ 
mercial countries on the Continent of 
Europe, the motives for amassing the 
precious metals may be less powerful 
than in the majority of Asiatic princi¬ 
palities; but the ability to accumulate 
being more widely extended, the abso¬ 
lute quantity amassed will be found 
probably to bear a considerably larger 
proportion to the population.* In 

* It is known, from unquestionable facts, 


403 

those states which lie exposed to hos¬ 
tile invasion, or whose social condition 
is unsettled and menacing, the motive 
indeed must still be very strong ; and 
in a nation carrying on an extensive 
commerce, both foreign and internal, 
without any considerable aid from any 
of the banking substitutes for money, 
the reserves of gold and silver indis¬ 
pensably required to secure the regu¬ 
larity of payments, must of themselves 
engross a share of the circulating coin 
which it would not be easy to estimate. 

“ In this country, where the banking 
system has been carried to an extent 
and perfection unknown in any other 
part of Europe, and may be said to 
have entirely superseded the use of 
coin, except for retail dealings and the 
purposes of foreign commerce, the in¬ 
centives to private hoarding exist no 
longer, and the hoards have all been 
transferred to the banks, or rather, I 
should say, to the Bank of England. 
But in France, where the bank-note 
circulation is still comparatively 
limited, the quantity of gold and silver 
coin in existence I find now currently 
estimated, on what are described as the 
latest authorities, at the enormous sum 
of 120 millions sterling; nor is the esti¬ 
mate at all at variance with the rea¬ 
sonable probabilities of the case. Of 
this vast treasure there is every reason 
to presume that a very large proportion, 
probably by much the greater part, is 
absorbed in the hoards. If you present 
for payment a bill for a thousand 
francs to a French banker, he brings 
you the silver in a sealed bag from his 
strong room. And not the banker only, 
but every merchant and trader, ac¬ 
cording to his means, is under the 
necessity of keeping by him a stock of 
cash sufficient not only for his ordinary 
disbursements, but to meet any unex¬ 
pected demands. That the quantity 
of specie accumulated in these innu- 

that the hoards of money at all times existing 
in the hands of the French peasantry, often 
from a remote date, surpass any amount 
which could have been imagined possible; 
and even in so poor a country as Ireland, it 
has of late been ascertained, that the small 
farmers sometimes possess hoards quite dis- 
proportioned to their visible means of sub«. 
sistence. 

D D 2 





BOOK III. CHAPTER XXIV. § 4. 


404 

merable depots, not in France only, but 
all over tlie Continent, where banking 
institutions are still either entirely 
wanting or very imperfectly organized, 
is not merely immense in itself, but 
admits of being largely drawn upon, 
and transferred even in vast masses 
from one country to another, with very 
little, if any, effect on prices, or other 
material derangements, we have had 
some remarkable proofs: ” among 
others, “ the signal success which at¬ 
tended the simultaneous efforts of some 
of the principal European powers 
(Russia, Austria, Prussia, Sweden, and 
Denmark) to replenish their treasuries, 
and to replace with coin a considerable 
portion of the depreciated paper which 
the necessities of the war had forced 
upon them, and this at the very time 
when the available stock of the pre¬ 
cious metals over the world had been 
reduced by the exertions of England to 

recover her metallic currency. 

There can be no doubt that these com¬ 
bined operations were on a scale of 
very extraordinary magnitude, that 
they were accomplished without any 
sensible injury to commerce or public 
prosperity, or any other effect than 
some temporary derangement of the 
exchanges, and that the private hoards 
cf treasure accumulated throughout 
Europe during the war must have been 
the principal source from which all 
this gold and silver was collected. And 
no person, I think, can fairly contem¬ 
plate the vast superflux of metallic 
wealth thus proved to be at all times 
in existence, and, though in a dormant 
and inert state, always ready to spring 
into activity on the first indication of a 
sufficiently intense demand, without 
feeling themselves compelled to admit 
the possibility of the mines being even 
shut up for years together, and the 
production of the metals altogether 
suspended, while there mightbe scarcely 
a perceptible alteration in the ex¬ 
changeable value of the metal.”* 

Applying this to the currency doc¬ 
trine and its advocates, “ one might 
imagine,” saj r s Mr. Fullarton,+ “ that 

* Ffillarton on the Regulation of Currencies, 
pp. 71—4. 

t lb. pp. 139- 42. 


they supposed the gold which is drained 
off for exportation from a country 
using a currency exclusively metallic, 
to be collected by driblets at the fairs 
and markets, or from the tills of the 
grocers and mercers. They never even 
allude to the existence of such a thing 
as a great hoard of the metals, though 
upon the action of the hoards depends 
the whole economy of international 
payments between specie-circulating 
communities, while any operation of 
the money collected in hoards upon 
prices must, even according to the 
currency hypothesis, be wholly impos¬ 
sible. We know from experience what 
enormous payments in gold and silver 
specie-circulating countries are capable, 
at times, of making, without the least 
disturbance of their internal pro¬ 
sperity ; and whence is it supposed 
that these payments come, but from 
their hoards ? Let us think how the 
money market of a country transacting 
all its exchanges through the medium 
of the precious metals only, would be 
likely to be affected by the necessity of 
making 3 foreign payment of several 
millions. Of course the necessity 
could only be satisfied by a transmis¬ 
sion of capital; and would not the 
competition for the possession of capi¬ 
tal for transmission which the occasion 
would call forth, necessarily raise the 
market rate of interest ? If the pay¬ 
ment was to be made by the govern¬ 
ment, would not the government, in all 
probability, have to open a new loan 
on terms more than usually favourable 
to the lender ?” If made by merchants, 
would it not be drawn either from the 
deposits in banks, or from the reserves 
which merchants keep by them in de¬ 
fault of banks, or would it not oblige 
them to obtain the necessary amount 
of specie by going into the money 
market as borrowers? “And would 
not all this inevitably act upon the 
hoards, and draw forth into activity a 
portion of the gold and silver which 
the money-dealers had been accumu¬ 
lating, and some of them with the 
express view of watching such oppor¬ 
tunities for turning their treasures to 
advantage? .... 

“To come to the present time 






REGULATION 

[1844], the balance of payments with 
nearly all Europe has for about four 
years past been in favour of this coun¬ 
try, and gold has been pouring in till 
the influx amounts to the unheard-of 
sum of about fourteen millions sterling. 
Yet in all this time, has any one heard 
a complaint of any serious suffering in¬ 
flicted on the people of the Continent? 
Have prices there been greatly de¬ 
pressed beyond their range in this 
country ? Have wages fallen, or have 
merchants been extensively ruined by 
the universal depreciation of their 
stock ? There has occurred nothing 
of the kind. The tenor of commercial 
and monetary affairs has been every¬ 
where even and tranquil; and in 
France more particularly, an improving 
revenue and extended commerce bear 
testimony to the continued progress of 
internal prosperity. It maybe doubted, 
indeed, if this great efflux of gold has 
■withdrawn from that portion of the 
metallic wealth of the nation which 
really circulates, a single napoleon. 
And it has been equally obvious, from 
the undisturbed state of credit, that 
not only has the supply of specie indis¬ 
pensable for the conduct of business in 
the retail market been all the while 
uninterrupted, but that the hoards 
have continued to furnish every facility 
requisite for the regularity of mercan¬ 
tile payments. It is of the very 
essence of the metallic system, that 
the hoards, in all cases of probable 
occurrence, should be equal to both 
objects; that they should, in the first 
place, supply the bullion demanded for 
exportation, and in the next place, 
should keep up the home circulation to 
its legitimate complement. Every man 
trading under that system, who, in the 
course of his business, may have fre¬ 
quent occasion to remit large sums in 
specie to foreign countries, must either 
keep by him a sufficient treasure of his 
own or must have the means of bor¬ 
rowing enough from his neighbours, 
not only to make up when wanted the 
amount of his remittances, but to en¬ 
able him, moreover, to carry on his 
ordinary transactions at home without 
interruption.” 

In a country in which credit is 


OF CURRENCY. 405 

) carried to so great an extent as in 
England, one great reserve, in a single 
establishment, the Bank of England, 
supplies the place, as far as the pre¬ 
cious metals are concerned, of the mul¬ 
titudinous reserves of other countries. 
The theoretical principle, therefore, of 
the currency doctrine would require, 
that all those drains of the metal, 
which, if the currency were purely 
metallic, would be taken from the 
hoards, should be allowed to operate 
freely upon the reserve in the coffers of 
the Bank of England, without any 
attempt to stop it either by a diminu¬ 
tion of the currency or by a contraction 
of credit. Nor to this would there be 
any well-grounded objection, unless the 
drain were so great as to threaten the 
exhaustion of the reserve, and a con¬ 
sequent stoppage of payments; a 
danger against which it is possible to 
take adequate precautions, because in 
the cases which we are considering, 
the drain is for foreign payments of 
definite amount, and stops of itself as 
soon as these are effected. And in all 
systems it is admitted that the habi¬ 
tual reserve of the Bank should exceed 
the utmost amount to which experience 
warrants the belief that such a drain 
may extend; which extreme limit 
Mr. Fullarton affirms to be seven 
millions, but Mr. Tooke recommends 
an average reserve of ten, and in his 
last publication, of twelve millions. 
Under these circumstances, the habi¬ 
tual reserve, which would never be em¬ 
ployed in discounts, but kept to be paid 
out exclusively in exchange for cheques 
or bank notes, would be sufficient for a 
crisis of this description ; which there¬ 
fore would pass off without having its 
difficulties increased by a contraction 
either of credit or of the circulation. 
But this, the most advantageous 
denouement that the case admits of, 
and not only consistent with, but re¬ 
quired by, the professed principle of 
the system, the panegyrists of the 
system claim for it as a great merit 
that it prevents. They boast, that on 
the first appearance of a drain for ex¬ 
portation, (whatever may be its cause, 
and whether under a metallic currency 
it would involve a contraction of credit 



BOOK III. CHAPTER XXIV. § 4. 


406 

cr not) the Bank is at once obliged to 
curtail its advances. And this, be it 
remembered, when there has been no 
speculative rise of prices which it is 
indispensable to correct, no unusual 
extension of credit requiring contrac¬ 
tion ; but the demand for gold is solely 
occasioned by foreign payments on 
account of government, or large corn im¬ 
portations consequent on a bad harvest. 

Even supposing that the reserve is 
insufficient to meet the foreign pay¬ 
ments, and that the means wherewith 
to make them have to be taken from 
the loanable capital of the country, the 
consequence of which is a rise of the 
rate of interest: in such circumstances 
some pressure on the money market is 
unavoidable; but that pressure is much 
increased in severity by the separation 
of the banking from the issue depart¬ 
ment. The case is generally stated as 
if the Act only operated in one way, 
namely, by preventing the Bank, when 
it has parted with (say) three millions 
of bullion in exchange for three millions 
of its notes, from again lending those 
notes, in discounts or other advances 
But the Act really does much more 
than this. It is well known, that the 
first operation of a drain is always on 
the banking department. The bank 
deposits constitute the bulk of the unem¬ 
ployed and disposable capital of the 
country; and capital wanted for foreign 
payments is almost always obtained 
mainly by drawing out deposits. Sup¬ 
posing three millions to be the amount 
wanted, three millions of notes are 
drawn from the banking department 
(either directly or through the private 
bankers, who keep the bulk of their 
reserves with the Bank of England), 
and the three millions of notes, thus 
obtained, are presented at the Issue 
Department, and exchanged against 
gold for exportation. Thus a drain 
upon the country at large of only three 
millions, is a drain upon the Bank vir¬ 
tually of six millions. The deposits 
have lost three millions, and the re¬ 
serve of the Issue Department has lost 
an equal amount. As the two depart¬ 
ments, so long as the Act remains in 
operation, cannot even in the utmost 
extremity help one another, each must 


take its separate precautions for its 
own safety. Whatever measures, there¬ 
fore, on the part of the Bank, would 
have been required under the old system 
by a drain of six millions, are now ren¬ 
dered necessary by a drain only of 
three. The Issue Department protects 
itself in the manner prescribed by the 
Act, by not re-issuing the three mil¬ 
lions of notes which have been returned 
to it. But the Banking Department 
must take measures to replenish its 
reserve, which has been reduced by 
three millions. Its liabilities having 
also decreased three millions, by the 
loss of that amount of deposits, the re¬ 
serve, on the ordinary banking principle 
of a third of the liabilities, will bear a 
reduction of one million. But the 
other two millions it must procure by 
letting that amount of advances run 
out, and not renewing them. Not 
only must it raise its rate of inte¬ 
rest, but it. must effect, by whatever 
means, a diminution of two millions in 
the total amount of its discounts, or it 
must sell securities to an equal amount. 
'This violent action on the money mar¬ 
ket for the purpose of replenishing the 
Banking reserve, is wholly occasioned 
by the Act of 1844. If the restrictions 
of that Act did not exist, the Bank, 
instead of contracting its discounts, 
would simply transfer two millions, 
either in gold or in notes, [from the 
Issue to the Banking Department; not 
in order to lend them to the public, but 
to secure the solvency of the Banking 
Department in the event of further un¬ 
expected demands by the depositors. 
And unless the drain continued, and 
reached so great an amount as to seem 
likely to exceed the whole of the gold 
in the reserves of both departments, 
the Bank would be under no necessity, 
while the pressure lasted, of withhold¬ 
ing from commerce its accustomed 
amount of accommodation, at a rate of 
interest corresponding to the increased 
demand.* 

* This, which I have called “ the double 
action of drains,” has been strangely under¬ 
stood as if I had asserted that the Bank 
is compelled to part with six millions’ worth 
of property by a drain of three millions. 
Such an assertion would be too absurd to 
require any i-efutation. Drains have a 




REGULATION OF CURRENCY. 


I am aware it will be said that by 
allowing drains of this character to 
operate freely upon the Bank reserve 
until they cease of themselves, a con¬ 
traction of the currency and of credit 
would not be prevented, but only post¬ 
poned ; since if a limitation of issues 
were not resorted to for the purpose of 
checking the drain in its commence¬ 
ment, the same or a still greater limi¬ 
tation must take place afterwards, in 
order, by acting on prices, to bring back 
this large quantity of gold, for the in¬ 
dispensable purpose of replenishing the 
Bank reserve. But in this argument 
several things are overlooked. In the 
first place, the gold might be brought 
back, not by a fall of prices, but by the 
much more rapid and convenient me¬ 
dium of a rise of the rate of interest, 
involving no fall of any prices except 
the prices of securities. Either Eng¬ 
lish securities would be bought on 
account of foreigners, or foreign secu¬ 
rities held in England would be sent 
abroad for sale, both which operations 
took place largely during the mercan- 

double action, not upon the pecuniary posi¬ 
tion of the Bank itself, but upon the 
measures it is forced to take in order to stop 
the drain. Though the Bank itself is no 
poorer, its two reserves, the reserve in the 
banking department and the reserve in the 
issue department, have each, been reduced 
three millions by a drain of only three. And 
as the separation of the departments renders 
it necessary that each of them separately 
should be kept as strong as the two together 
need be if they could help one another, the 
Bank’s action on the money market must be 
as violent on a drain of three millions, as 
would have been required on the old system 
for one of six. The reserve in the banking 
department being less than it otherwise 
would be by the entire amount of the bul¬ 
lion in the issue department, and the whole 
amount of the drain falling in the first in¬ 
stance on that diminished reserve, the pres¬ 
sure of the whole drain on the half reserve is 
as much felt, and requires as strong measures 
to stop it, as a pressure of twice the amount 
on the entire reserve. As I have said else¬ 
where,* “ it is as if a man having to lift a 
weight were restricted from using both hands 
to do it, and were only allowed to use one 
hand at a time; in which case it would be 
necessary that each of his hands should be 
as strong as the two together.” 


* Evidence before the Committee of the 
House of Commons on the Bank Acts, in 
1857. 


407 

tile difficulties of 1847, and not only 
checked the efflux of gold, but turned 
tbe tide and brought the metal back. 
It was not, therefore, brought back by 
a contraction of the currency, though 
in this case it certainly was so by a 
contraction of loans. But even this is 
not always indispensable. For in the 
second place, it is not necessary that 
the gold should return with the same 
suddenness with which it went out. A 
great portion would probably return in 
the ordinary way of commerce, in pay¬ 
ment for exported commodities. The 
extra gains made by dealers and pro¬ 
ducers in foreign countries through 
the extra payments they receive from 
this country, are very likely to be partly 
expended in increased purchases of 
English commodities, either for con¬ 
sumption or on speculation, though the 
effect may not manifest itself with suffi¬ 
cient rapidity to enable the transmis¬ 
sion of gold to be dispensed with in the 
first instance. These extra purchases 
would turn the balance of payments in 
favour of the country, and gradually 
restore a portion of the exported gold; 
and the remainder would probably be 
brought back, without any considerable 
rise of the rate of interest in England, 
by the fall of it in foreign countries, 
occasioned by the addition of some 
millions of gold to the loanable capital 
of those countries. Indeed, in the state 
of things consequent on the gold dis¬ 
coveries, when the enormous quantity 
of gold annually produced in Australia, 
and much of that from California, is 
distributed to other countries through 
England, and a month seldom passes 
without a large arrival, the Bank re¬ 
serves can replenish themselves with¬ 
out any re-importation of the gold pre¬ 
viously carried off by a drain. All that 
is needful is an intermission, and a very 
brief intermission is sufficient, of the 
exportation. 

For these reasons it appears to me, 
that notwithstanding the beneficial 
operation of the Act of 1844 in the 
first stages of one kind of commercial 
crisis (that produced by over-specula¬ 
tion), it on the whole materially aggra¬ 
vates the severity of commercial revul¬ 
sions. And not only are contractions 





408 BOOK III. CHAPTER XXIV. 8 5. 


of credit made more severe by the Act, 
they are also made greatly more 
frequent. “ Suppose,” says Mr. George 
Walker, in a clear, impartial, and con¬ 
clusive series of papers in the Aberdeen 
Herald , forming one of the best exist¬ 
ing discussions of the present question 
—“suppose that, of eighteen millions 
of gold, ten are in the issue department 
and eight are in the banking depart¬ 
ment. The result is the same as under 
a metallic currency with only eight 
millions in reserve instead of eighteen. 
. . . . The effect of the Bank Act is, 
that the proceedings of the Bank under 
a drain are not determined by the 
amount of gold within its vaults, but 
are, or ought to be, determined by the 
portion of it belonging to the banking 
department. With the whole of the 
gold at its disposal, it may find it un¬ 
necessary to interfere with credit, or 
force down prices, if a drain leave a 
fair reserve behind. With only the 
banking reserve at its disposal, it must, 
from the narrow margin it has to ope¬ 
rate on, meet all drains by counterac¬ 
tives more or less strong, to the injury 
of the commercial world ; and if it fail 
to do so, as it may fail, the consequence 
is destruction. Hence the extraordinary 
and frequent variations of the rate of 
interest under the Bank Act. Since 
1847, when the eyes of the Bank -were 
opened to its true position, it has felt 
it necessary, as a precautionary mea¬ 
sure, that every variation in the reserve 
should be accompanied by an altera¬ 
tion in the rate of interest.” To make 
the Act innocuous, therefore, it would 
be necessary that the Bank, in addition 
to the whole of thej gold in the Issue 
Department, should retain as great a 
reserve in gold or notes in the Banking 
Department alone, as would suffice 
under the old system for the security 
both of the issues and of the deposits. 

§ 5. There remain two questions 
respecting a bank-note currency, ■which 
have also been a subject of consi¬ 
derable discussion of late years: whe¬ 
ther the privilege of providing it should 
be confined to a single establishment, 
such as the Bank of England, or a 
plurality of issuers should be allowed: 


and in the latter case, whether any 
peculiar precautions are requisite or 
advisable, to protect the holders of notes- 
against losses occasioned by the insol¬ 
vency of the issuers. 

The course of the preceding specu¬ 
lations has led us to attach so much 
less of peculiar importance to bank 
notes, as compared with other forms of- 
credit, than accords with the notions 
generally current, that questions re¬ 
specting the regulation of so very small 
a part of the general mass of credit, 
cannot appear to us of such momentous- 
import as they are sometimes considered. 
Bank notes, however, have so far a real 
peculiarity, that they are the only form 
of credit sufficiently convenient for all 
the purposes of circulation, to be able 
entirely to supersede the use of metallic 
money for internal purposes. Though 
the extension of the use of cheques has 
a tendency more ana more to diminish 
the number of bank notes, as it would 
that of the sovereigns or other coins- 
which would take their place if they 
were abolished ; there is sure, for a long¬ 
time to come, to be a considerable sup¬ 
ply of them wherever the necessary 
degree of commercial confidence exists, 
and their free use is permitted. The 
exclusive privilege, therefore, of issuing 
them, if reserved to the government or 
to some one body, is a source of great 
pecuniary gain. That this gain should, 
be obtained for the nation at large is 
both practicable and desirable : and if 
the management of a bank-note cur¬ 
rency ought to be so completely mecha¬ 
nical, so entirely a thing of fixed rale, as 
it is made by the Act of 1844, there 
seems no reason why this mechanism 
should be worked for the profit of any 
private issuer, nather than for the pub¬ 
lic treasury. If, however, a plan be 
preferred which leaves the variations- 
in the amount of issues in any degree 
whatever to the discretion of the issuers, 
it is not desirable that to the ever-grow¬ 
ing attributions of the government, so- 
delicate a function should be super- 
added ; and that the attention of the 
heads of the state should be diverted 
from larger objects, by their being be¬ 
sieged with the applications, and made 
a mark for all the attacks, which are 



REGULATION OF CURRENCY. 409 


never spared to those deemed to be 
responsible for any acts, however mi¬ 
nute, connected with the regulation of 
the currency. It would he better that 
treasury notes, exchangeable for gold 
on demand, should be issued to a fixed 
amount, not exceeding the minimum of 
a bank-note currency; the remainder of 
the notes which may be required being 
left to be supplied either by one or by 
a number of private banking establish¬ 
ments. Or an establishment like the 
Bank of England might supply the 
whole country, on condition of lending 
fifteen or twenty millions of its notes 
to the government without interest; 
which would give the same pecuniary 
advantage to the state as if it issued 
that number of its own notes. 

The reason ordinarily alleged in 
condemnation of the system of plurality 
of issuers which existed in England 
before the Act of 1844, and under 
certain limitations still subsists, is, that 
the competition of these different is¬ 
suers induces them to increase the 
amount of their notes to an injurious 
extent. But we have seen that the 
power which bankers have of augment¬ 
ing their issues, and the degree of 
mischief which they can produce by it, 
are quite trifling compared with the 
current over-estimate. As remarked 
by Mr. Fullarton,* the extraordinary 
increase of banking competition occa¬ 
sioned by the establishment of the 
joint-stock banks, a competition often 
of the most reckless kind, has proved 
utterly powerless to enlarge the aggre¬ 
gate mass of the bank-note circulation ; 
that aggregate circulation having, on 
the contrary, actually decreased. In 
the absence of any special case for an 
exception to freedom of industry, the 
general rule ought to prevail. It ap¬ 
pears desirable, however, to maintain 
one great establishment like the Bank 
of England, distinguished from other 
banks of issue in this, that it alone is 
required to pay in gold, the others 
being at liberty to pay their notes with 
notes of the central establishment. The 
object of this is that there may be one 
body, responsible for maintaining a re¬ 
serve of the precious metals sufficient 
* Pp. 89—92. 


to meet any drain that can reasonably 
be expected to take place. By disse¬ 
minating this responsibility among a 
number of banks, it is prevented from 
operating efficaciously upon any : or if 
it be still enforced against one, the re¬ 
serves of the metals retained by all the 
others are capital kept idle in pure 
waste, which may be dispensed with 
by allowing them at their option to 
pay in Bank of England notes. 

§ 6. The question remains whether, 
in case of a plurality of issuers, any 
peculiar precautions are needed to 
protect the holders of notes from the 
consequences of failure of payment. 
Before 1826, the insolvency of banks of 
issue was a frequent and very serious 
evil, often spreading distress through a 
whole neighbourhood, and at one blow 
depriving provident industry of the 
results of long and painful saving. This 
was one of the chief reasons which in¬ 
duced Parliament, in that year, to pro¬ 
hibit the issue of bank notes of a deno¬ 
mination below five pounds, that the 
labouring classes at least might be as 
little as possible exposed to participate 
in this suffering. As an additional 
safeguard, it has been suggested to 
give the holders of notes a priority 
over other creditors, or to require 
bankers to deposit stock or other public 
securities as a pledge for the whole 
amount of their issues. The insecurity 
of the former bank-note currency of 
England was partly the work of the 
law, which, in order to give a qualified 
monopoly of banking business to the 
Bank of England, had actually made 
the formation of safe banking establish¬ 
ments a punishable offence, by prohi¬ 
biting the existence of any banks, in 
town or country, whether of issue or 
deposit, with a number of partners ex¬ 
ceeding six. This truly characteristic 
specimen of the old system of monopoly 
and restriction was done awav with in 
1826, both as to issues and deposits, 
everywhere but in a district of sixty- 
five miles radius round London, and in 
1833 in that district also, as far as 
relates to deposits. It was hoped that 
the numerous joint-stock banks sinco 
established, would have furnished a 




BOOK III. CHAPTER XXV. § 1. 


410 

more trustworthy currency, and that 
under their influence the hanking 
system of England would have been 
almost as secure to the public as that 
of Scotland (where banking was always 
free) has been for two centuries past. 
But the almost incredible instances of 
reckless and fraudulent mismanagement 
which these institutions have of late 
afforded (though in some of the most 
notorious cases the delinquent esta¬ 


blishments have not been banks of 
issue), have shown only too clearly that, 
south of the Tweed at least, the joint- 
stock principle applied to banking is 
not the adequate safeguard it was so 
confidently supposed to be : and it is 
difficult now to resist the conviction, 
that if plurality of issuers is allowed to 
exist, some kind of special security in 
favour of the holders of notes should be 
exacted as an imperative condition. 


CHAPTER XXV. 

OF THE COMPETITION OF DIFFERENT COUNTRIES IN THE SAME MARKET. 


§ 1. In the phraseology of the 
Mercantile System, the language and 
doctrines of which are still the basis of 
what may be called the political eco¬ 
nomy of the selling classes, as distin¬ 
guished from the buyers or consumers, 
there is no word of more frequent 
recurrence or more perilous import 
than the word underselling. To un¬ 
dersell other countries — not to be 
undersold by other countries — were 
spoken of, and are still very often 
spoken of, almost as if they were the 
sole purposes for which production and 
commodities exist. The feelings of 
rival tradesmen, prevailing among 
nations, overruled for centuries all 
sense of the general community of ad¬ 
vantage which commercial countries 
derive from the prosperity of one an¬ 
other : and that commercial spirit 
which is now one of the strongest ob¬ 
stacles to wars, was during a certain 
period of European history their prin¬ 
cipal cause. 

Even in the more enlightened view 
now attainable of the nature and con¬ 
sequences of international commerce, 
some, though a comparatively small, 
space must still be made for the fact of 
commercial rivality. Nations may, 
like individual dealers, be competitors, 
with opposite interests, in the markets 
of some commodities, while in others 
they are in the more fortunate relation 
of reciprocal customers. The benefit 


of commerce does not consist, as it was 
once thought to do, in the commodities 
sold; but, since the commodities sold 
are the means of obtaining those which 
are bought, a nation would be cut off 
from the real advantage of commerce, 
the imports, if it could not induce other 
nations to take any of its commodities 
in exchange; and in proportion as the 
competition of other countries compels 
it to offer its commodities on cheaper 
terms, on pain of not selling them at 
all, the imports which it obtains by its 
foreign trade are procured at greater 
cost. 

These points have been adequately, 
though incidentally, illustrated in some 
of the preceding chapters. But the 
great space which the topic has filled, 
and continues to fill, in economical 
speculations, and in the practical 
anxieties both of politicians and of 
dealers and manufacturers, makes it 
desirable, before quitting the subject 
of international exchange, to subjoin a 
few observations on the things which 
do, and on those which do not, enable 
countries to undersell one another. 

One country can only undersell an¬ 
other in a given market, to the extent 
of entirely expelling her from it, on two 
conditions. In the first place, she must 
have a greater advantage than the 
second country in the production of the 
article exported by both; meaning by 
a greater advantage (as has been al- 





COMPETITION OF COUNTRIES IN THE SAME MARKET. 411 


ready so fully explained) not absolutely, 
but in comparison with other commo¬ 
dities ; and in the second place, such 
must be her relation with the customer 
country in respect to the demand for 
each other’s products, and such the 
consequent state of international va¬ 
lues, as to give away to the customer 
country more than the whole advan¬ 
tage possessed by the rival country; 
otherwise the rival will still be able to 
hold her ground in the market. 

Let us revert to the imaginary hypo¬ 
thesis of a trade between England and 
Germany in cloth and linen: England 
being capable of producing 10 yards of 
cloth at the same cost with 15 yards of 
linen, Germany at the same cost with 
20, and the two commodities being 
exchanged between the two countries 
(cost of carriage apart) at some inter¬ 
mediate rate, say 10 for 17. Germany 
could not be permanently undersold in 
the English market, and expelled from 
it, unless by a country which offered 
not merely more than 17, but more 
than 20 yards of linen for 10 of cloth. 
Short of that, the competition would 
only oblige Germany to pay dearer for 
cloth, but would not disable her from 
exporting linen. The country, there¬ 
fore, which could undersell Germany, 
must, in the first place, be able to 
produce linen at less cost, compared 
with cloth, than Germany herself; and 
in the next place, must have such a 
demand for cloth, or other English 
commodities, as would compel her, even 
■when she became sole occupant of the 
market, to give a greater advantage to 
England than Germany could give by 
resigning the whole of hers; to give, 
for example, 21 yards for 10. For if 
not—if, for example, the equation of 
international demand, after Germany 
was excluded, gave a ratio of 18 for 10, 
Germany could again enter into the 
competition; Germany would be now 
the underselling nation; and there 
would be a point, perhaps 19 for 10, at 
which both countries would be able to 
maintain their ground, and to sell in 
England enough linen to pay for the 
cloth, or other English commodities, 
for which, on these newly adjusted 
terms of interchange, they had a de¬ 


mand. In like manner, England, as 
an exporter of cloth, could only be 
driven from the German market by 
some rival whose superior advantages 
in the production of cloth enabled her, 
and the intensity of whose demand for 
German produce compelled her, to 
offer 10 yards of cloth, not merely for 
less than 17 yards of linen, but for less 
than 15. In that case, England could 
no longer carry on the trade without 
loss; but in any case short of this, she 
would merely be obliged to give to 
Germany more cloth for less linen than 
she had previously given. 

It thus appears that the alarm of be¬ 
ing permanently undersold may be taken 
much too easily; may be taken when 
the thing really to be anticipated is 
not the loss of the trade, but the minor 
inconvenience of carrying it on at a 
diminished advantage; an inconve¬ 
nience chiefly falling on the consumers 
of foreign commodities, and not on the 
producers or sellers of the exported 
article. It is no sufficient ground of 
apprehension to the English producers, 
to find that some other country can 
sell cloth in foreign markets at some 
particular time, a trifle cheaper than 
they can themselves afford to do in the 
existing state of prices in England. 
Suppose them to be temporarily unsold, 
and their exports diminished; the im¬ 
ports will exceed the exports, there will 
be a new distribution of the precious 
metals, prices will fall, and as all the 
money expenses of the English pro¬ 
ducers will be diminished,-they will be 
able (if the case falls short of that 
stated in the preceding paragraph) 
again to compete with their rivals. 
The loss which England will incur, 
will not fall upon the exporters, but 
upon those who consume imported 
commodities; who, with money incomes 
reduced in amount, will have to pay 
the same or even an increased price 
for all -things produced in foreign 
countries. 

§ 2. Such, I conceive, is the true 
theory, or rationale, of underselling. 
It will be observed that it takes no 
account of some things which we hear 
spoken of, oftener perhaps than any 




BOOK III. CHAPTER XXV. § 3. 


412 

others, in the character of causes ex¬ 
posing a country to he undersold. 

According to the preceding doctrine, 
a country cannot be undersold in any 
commodity, unless the rival country 
has a stronger inducement than itself 
for devoting its labour and capital to the 
production of the commodity; arising 
from the fact that by doing so it occa¬ 
sions a greater saving of labour and 
capital, to be shared between itself and 
its customers—a greater increase of the 
aggregate produce of the world. The 
underselling, therefore, though a loss 
to the undersold country, is an advan¬ 
tage to the world at large ; the sub¬ 
stituted commerce being one which 
economizes more of the labour and 
capital of mankind, and adds more to 
their collective wealth, than the com¬ 
merce superseded by it. The advan¬ 
tage, of course, consists in being able 
to produce the commodity of better 
quality, or with less labour (compared 
with other things); or perhaps not with 
less labour, but in less time; with a 
less prolonged detention of the capital 
employed. This may arise from greater 
natural advantages (such as soil, cli¬ 
mate, richness of mines); superior ca¬ 
pability, either natural or acquired, in 
the labourers ; better division of labour, 
and better tools, or machinery. But 
there is no place left in this theory for 
the case of lower wages. This, how¬ 
ever, in the theories commonly current, 
is a favourite cause of underselling. 
We continually hear of the disadvan¬ 
tage under which the British producer 
labours, both in foreign markets and 
even in his own, through the lower 
wages paid by his foreign rivals. These 
lower wages, we are told, enable, or are 
always on the point of enabling them 
to sell at lower prices, and to dislodge 
the English manufacturer from all 
markets in which he is not artificially 
protected. 

Before examining this opinion on 
grounds of principle, it is worth while 
to bestow a moment’s consideration 
upon it as a question of fact. Is it 
true that the wages of manufacturing 
labour are lower in foreign countries 
than in England, in any sense in which 
low wages are an advantage to the 


capitalist? The artisan of Ghent or 
Lyons may earn less wages in a day, 
but does he not do less work ? Degrees 
of efficiency considered, does his labour 
cost less to his employer? Though 
wages may be lower on the Continent, 
is not the Cost of Labour, which is the 
real element in the competition, very 
nearly the same? That it is so seems 
the opinion of competent judges, and is 
confirmed by the very little difference 
in the rate of profit between England 
and the Continental countries. But if 
so, the opinion is absurd that English 
producers can be undersold by their 
Continental rivals from this cause. It 
is only in America that the supposition 
is prima facie admissible. In America, 
wages are much higher than in Eng¬ 
land, if we mean by wages the daily 
earnings of a labourer: but the produc¬ 
tive power of American labour is so 
great—its efficiency, combined with 
the favourable circumstances in which 
it is exerted, makes it worth so much 
to the purchaser, that the Cost of 
Labour is lower in America than in 
England ; as is indicated by the fact 
that the general rate of profits and of 
interest is higher. 

§ 3. But is it true that low wages, 
even in the sense of low Cost of Labour, 
enable a country to sell cheaper in the 
foreign market? I mean, of course, 
low wages which are common to the 
whole productive industry of the 
country. 

If wages, in any of the departments 
of industry which supply exports, are 
kept, artificially, or by some accidental 
cause, below the general rate of wages 
in the country, this is a real advantage 
in the foreign market. It lessens the 
comparative cost of production of those 
articles, in relation to others; and 
has the same effect as if their pro¬ 
duction required so much less labour. 
Take, for instance, the case of the 
United States in respect to certain 
commodities. In that country, tobacco 
and cotton, two great articles of export, 
are produced by slave labour, while 
food and manufactures generally are 
produced by free labourers, who either 
work on their own account or are paid 



COMPETITION OF COUNTRIES IN THE SAME MARKET. 413 


by wages. In spite of the inferior 
efficiency of slave labour, there can be 
no reasonable doubt that in a country 
where the wages of free labour are so 
high, the work executed by slaves is a 
better bargain to the capitalist. To 
whatever extent it is so, this smaller 
cost of labour, being not general, but 
limited to those employments, is just 
as much a cause of cheapness in the 
products, both in the home and in the 
foreign market, as if they had been 
made by a less quantity of labour. If 
the slaves in the Southern States were 
all emancipated, and their wages rose 
to the general level of the earnings of 
free labour in America, that country 
might be obliged to erase some of the 
slave-grown articles from the catalogue 
of its exports, and would certainly be 
unable to sell any of them in the foreign 
market at the accustomed price. Their 
cheapness is partly an artificial cheap¬ 
ness, which may be compared to that 
produced by a bounty on production 
or on exportation : or, considering the 
means by which it is obtained, an apter 
comparison would be with the cheap¬ 
ness of stolen goods. 

An advantage of a similar economi¬ 
cal, though of a very different moral 
character, is that possessed by domestic 
manufactures ; fabrics produced in the 
leisure hours of families partially 
occupied in other pursuits, who, not 
depending for subsistence on the pro¬ 
duce of the manufacture, can afford to 
sell it at any price, however low, for 
which they think it worth while to 
take the trouble of producing. In an 
account of the Canton of Zurich, to 
which I have had occasion to refer on 
another subject, it is observed,* “ The 
workman of Zurich is to-day a manufac¬ 
turer, to-morrow again an agriculturist, 
and changes his occupations with the 
seasons, in a continual round. Manu¬ 
facturing industry and tillage advance 
h and in hand, in inseparable alliance, 
and in this union of the two occupa¬ 
tions the secret may be found, why the 
simple and unlearned Swiss manufac¬ 
turer can always go on competing, and 
increasing in prosperity, in the face of 

* Historical, Geographical , and Statistical 
Picture of Sicitzerlund, vol. i. p. 105 (1831). 


those extensive establishments fitted 
out with great economic, and (what is 
still more important) intellectual, re¬ 
sources. Even in those parts of the 
Canton where manufactures have ex¬ 
tended themselves the most widely, 
only one-seventh of all the families 
belong to manufactures alone ; four- 
sevenths combine that employment 
with agriculture. The advantage of 
this domestic or family manufacture 
consists chiefly in the fact, that it is 
compatible with all other avocations, 
or rather that it may in part be re¬ 
garded as only a supplementary em¬ 
ployment. In winter, in the dwellings 
of the operatives, the whole family 
employ themselves in it: but as soon 
as spring appears, those on whom the 
early field labours devolve, abandon the 
in-door work; man}' a shuttle stands 
still; by degrees, as the field-work 
increases, one member of the family 
follows another, till at last, at the 
harvest, and during the so-called ‘great 
works,’ all hands seize the implements 
of husbandry; but in unfavourable 
weather, and in all otherwise vacant 
hours, the work in the cottage is re¬ 
sumed, and when the ungenial season 
again recurs, the people return in the 
same gradual order to their home 
occupation, until they have all re¬ 
sumed it.’’ 

In the case of these domestic ma¬ 
nufactures, the comparative cost of 
production, on which the interchange 
between countries depends, is much 
lower than in proportion to the quan¬ 
tity of labour employed. The work¬ 
people, looking to the earnings of their 
loom for a part only, if for any part, of 
their actual maintenance, can afford to 
work for a less remuneration, than the 
lowest rate of wages which can per¬ 
manently exist in the employments by 
which the labourer has to support the 
whole expense of a family. Working, 
as they do, not for an employer but for 
themselves, they may be said to carry 
on the manufacture at no cost at all, 
except the small expense of a loom and 
of the material; and the limit of pos¬ 
sible cheapness is not the necessity of 
living by their trade, but that of earn¬ 
ing enough by the work to make that 



414 BOOK III. CHAPTER XXY. §§ 4, 5. 


social employment of tlieir leisure hours 
not disagreeable. 

§ 4. These two cases, of slave labour 
and of domestic manufactures, exem¬ 
plify the conditions under which low 
wages enable a country to sell its com¬ 
modities cheaper in foreign markets, 
and consequently to undersell its rivals, 
or to avoid being undersold by them. 
But no such advantage is conferred by 
low wages when common to all branches 
of industry. General low wages never 
caused any country to undersell its 
rivals, nor did general high wages ever 
hinder it from doing so. 

To demonstrate this, we must return 
to an elementary principle which was 
discussed in a former chapter.* Gene¬ 
ral low wages do not cause low prices, 
nor high wages high prices, within the 
country itself. General prices are not 
raised by a rise of wages, any more than 
they would be raised by an increase of 
the quantity of labour required in all 
production. Expenses which affect all 
commodities equally, have no influence 
on prices. If the maker of broadcloth 
or cutlery, and nobody else, had to pay 
higher wages, the price of his commo¬ 
dity would rise, just as it would if he 
had to employ more labour; because 
otherwise he would gain less profit than 
other producers, and nobody would 
engage in the employment. But if 
everybody has to pay higher wages, or 
everybody to employ more labour, the 
loss must be submitted to ; as it affects 
everybody alike, no one can hope to get 
rid of it by a change of employment, 
each therefore resigns himself to a 
diminution of profits, and prices remain 
as they were. In like manner, general 
low wages, or a general increase in the 
productiveness of labour, does not make 
prices low, but profits high. If wages 
fall (meaning here by wages the cost 
of labour), why, on that account, should 
the producer lower his price? He will 
be forced, it may be said, by the com¬ 
petition of other capitalists who will 
crowd into his employment. But other 
capitalists are also paying lower wages, 
and by entering into competition with 
him they would gain nothing but what 
* Supra, book iii. ch. iv. 


they are gaining already. The rate 
then at which labour is paid, as well as 
the quantity of it which is employed, 
affects neither the value nor the price 
of the commodity produced, except in 
so far as it is peculiar to that commo¬ 
dity, and not common to commodities 
generally. 

Since low wages are not a cause of 
low prices in the country itself, so 
neither do they cause it to offer its 
commodities in foreign markets at a 
lower price. It is quite true that if the 
cost of labour is lower in America than 
in England, America could sell her 
cottons to Cuba at a lower price than 
England, and still gain as high a profit 
as the English manufacturer. But it 
is not with the profit of the English 
manufacturer that the American cotton 
spinner will make his comparison; it 
is with the profits of other American 
capitalists. These enjoy, in common 
with himself, the benefit of a low cost 
of labour, and have accordingly a high 
rate of profit. This high profit the 
cotton spinner must also have: he will 
not content himself with the English 
profit. It is true he may go on for a 
time at that lower rate, rather than 
change his employment; and a trade 
may be carried on, sometimes- for a 
long period, at a much lower profit 
than that for which it would have 
been originally engaged in. Countries 
which have a low cost of labour, and 
high profits, do not for that reason 
undersell others, but they do oppose a 
more obstinate resistance to being 
undersold, because the producers can 
often submit to a diminution of profit 
without being unable to live, and even 
to thrive, by their business. But this 
is all which their advantage does for 
them : and in this resistance they will 
not long persevere, when a change of 
times, which may give them equal 
profits with the rest of their country¬ 
men, has become manifestly hopeless. 

§ 5. There is a class of trading and 
exporting communities, on which a 
few words of explanation seem to be 
required. These are hardly to be 
looked upon as countries, carrying on 
an exchange of commodities with other 



COMPETITION OF COUNTRIES IN THE SAME MARKET. 415 


countries, but more properly as out¬ 
lying agricultural or manufacturing 
establishments belonging to a larger 
community. Our West India colonies, 
for example, cannot be regarded as 
countries, with a productive capital of 
their own. If Manchester, instead of 
being where it is, were on a rock in 
the North Sea (its present industry 
nevertheless continuing), it would still 
be but a town of England, not a 
country trading with England; it 
would be merely, as now, a place 
where England finds it convenient to 
carry on her cotton manufacture. The 
West Indies, in like manner, are the 
place where England finds it con¬ 
venient to carry on the production of 
sugar, coffee, and a few other tropical 
commodities. All the capital employed 
is English capital; almost all the in¬ 
dustry is carried on for English uses; 
there is little production of anything 
except the staple commodities, and 
these are sent to England, not to be 
exchanged for things exported to the 
colony and consumed by its inhabitants,' 
but to be sold in England for the be¬ 
nefit of the proprietors there. The 
trade with the West Indies is therefore 
hardly to be considered as external 
trade, but more resembles the traffic 
between town and country, and is 
amenable to the principles of the home 
trade. The rate of profit in the colo¬ 
nies will be regulated by English pro¬ 
fits : the expectation of profit must be 
about the same as in England, with 
the addition of compensation for the 
disadvantages attending the more dis¬ 
tant and hazardous employment: and 
after allowance is made for those dis¬ 
advantages, the value and price of 
West India produce in the English 
market must be regulated (or rather 
must have been regulated formerly), 
like that of any English commodity, 
by the cost of production. For the 
last twelve or fifteen years this prin¬ 
ciple has been in abeyance : the price 
was first kept up beyond the ratio of 
the cost of production by deficient sup¬ 
plies, which could not, owing to the 
deficiency of labour, be increased ; and 
more recently the admission of foreign 
competition has introduced another 


element, and some of the West Tndia 
Islands are undersold, not so much be¬ 
cause wages are higher than in Cuba 
and Brazil, as because they are higher 
than in England : for were they not so, 
Jamaica could sell her sugars at Cuban 
prices, and still obtain, though not a 
Cuban, an English rate of profit. 

It is worth while also to notice an¬ 
other class of small, but in this case 
mostly independent communities, 
which have supported and enriched 
themselves almost without any produc¬ 
tions of their own, (except ships and 
marine equipments,) by a mere carry¬ 
ing trade, and commerce of entrepot; 
by buying the produce of one country, 
to sell it at a profit in another. Such 
were Venice and the Hanse Towns. 
The case of these communities is very 
simple. They made themselves and 
their capital the instruments, not of 
production, but of accomplishing ex¬ 
changes between the productions of 
other countries. These exchanges are 
attended with an advantage to those 
countries—an increase of the aggregate 
returns to industry—part of which 
went to indemnify the agents, for the 
necessary expense of transport, and 
another part to remunerate the use of 
their capital and mercantile skill. The 
countries themselves had not capital 
disposable for the operation. When 
the Venetians became the agents of 
the general commerce of Southern 
Europe, they had scarcely any compe¬ 
titors : the thing would not have been 
done at all without them, and there 
was really no limit to their profits 
except the limit to what the ignorant 
feudal nobility could and would give 
for the unknown luxuries then first 
presented to their sight. At a later 
period competition arose, and the profit 
of this operation, like that of others, 
became amenable to natural laws. The 
carrying trade was taken up by Hol¬ 
land, a country with productions of 
its own and a large accumulated ca¬ 
pital. The .other nations of Europe 
also had now capital to spare, and were 
capable of conducting their foreign 
trade for themselves: but Holland, 
having, from a variety of circumstances, 
a lower rate of profit at home, could 



BOOK III. CHAPTER XXVI. § 1. 


416 

afford to carry for other countries at a 
smaller advance on the original cost of 
the goods, than would have been re¬ 
quired by their own capitalists; and 
Holland, therefore, engrossed the 


greatest part of the carrying trade of 
all those countries which did not keep 
it to themselves by Navigation Laws, 
constructed, like those of England, for 
that express purpose. 


CHAPTER XXVI. 

OF DISTRIBUTION, AS AFFECTED BY EXCHANGE, 


§ 1. We have now completed, as far 
as is compatible with our purposes and 
limits, the exposition of the machinery 
through which the produce of a country 
is apportioned among the different 
classes of its inhabitants; which is no 
other than the machinery of Exchange, 
and has for the exponents of its opera¬ 
tion, the laws of Value and of Price. 
We shall now avail ourselves of the 
light thus acquired, to cast a retro¬ 
spective glance at the subject of Lis- 
tribution. The division of the produce 
among the three classes, Labourers, 
Capitalists, and Landlords, when con¬ 
sidered without any reference to Ex¬ 
change, appeared to depend on certain 
general laws. It is fit that we should 
now consider whether these same laws 
still operate, when the distribution 
takes place through the complex me¬ 
chanism of exchange and money; or 
whether the properties of the me¬ 
chanism interfere with and modify the 
presiding principles. 

The primary division of the produce 
of human exertion and frugality is, as 
we have seen, into three shares, wages, 
profits, and rent; and these shares are 
portioned out to the persons entitled 
to them, in the form of money, and by 
a process of exchange; or rather, the 
capitalist, with whom in the usual ar¬ 
rangements of society the produce 
remains, pays in money, to the other 
two sharers, the market value of their 
labour and land. If we examine, on 
what the pecuniary value of labour, 
and the pecuniary value of the use of 
land, depend, we shall find that it is 
on the very same causes by which we 
found that wages and rent would be 


regulated if there were no money and 
no exchange of commodities. 

It is evident, in the first place, that 
the law of Wages is not affected by 
the existence or non-existence of Ex¬ 
change or Money. Wages depend on 
the ratio between population and ca¬ 
pital ; and would do so if all the capital 
in the world were the property of one 
association, or if the capitalists among 
whom it is shared maintained each an 
establishment for the production of 
every article consumed in the commu¬ 
nity, exchange of commodities having 
no existence. As the ratio between 
capital and population, in all old 
countries, depends on the strength of 
the checks by which the too rapid in¬ 
crease of population is restrained, it 
maybe said, popularly speaking, that 
wages depend on the checks to popu¬ 
lation ; that when the check is not 
death, by starvation or disease ,wages 
depend on the prudence of the labour¬ 
ing people ; and that wages in any 
country are habitually at the lowest 
rate, to which in that country the 
labourer will suffer them to be de¬ 
pressed rather than put a restraint 
upon multiplication. 

What is here meant, however, by 
wages, is the labourer’s real scale of 
comfort; the quantity he obtains of 
the things which nature or habit has 
made necessary or agreeable to him: 
wages in the sense in which they are 
of importance to the receiver. In the 
sense in which they are of importance 
to the payer, they do not depend ex¬ 
clusively on such simple principles. 
Wages in the first sense, the wages on 
which the labourer’s comfort depends, 






DISTRIBUTION AS AFFECTED BY EXCHANGE. 417 


we will call real wages, or wages in 
kind. Wages in the second sense, we 
may he permitted to call, for the pre¬ 
sent, money wages ; assuming, as it is 
allowable to do, that money remains 
for the time an invariable standard, no 
alteration taking place in the condi¬ 
tions under which the circulating me¬ 
dium itself is produced or obtained. 
If money itself undergoes no variation 
in cost, the money price of labour is an 
exact measure of the Cost of Labour, 
and may be made use of as a conve¬ 
nient symbol to express it. 

The money wages of labour are a 
compound result of two elements: first, 
real wages, or wages in kind, or iu 
other words, the quantity which the 
labourer obtains of the ordinary ar¬ 
ticles of consumption ; and secondly, 
the money prices of those articles. In 
all old countries—all countries in which 
the increase of population is in any 
degree checked by the difficulty ot 
obtaining subsistence—the habitual 
money price of labour is that which 
will just enable the labourers, one 
with another, to purchase the commo¬ 
dities without which they either cannot 
or will not keep up the population at 
its customary rate of increase. Their 
standard of comfort being given, (and 
by the standard of comfort in a labour¬ 
ing class, is meant that, rather than 
forego which, they will abstain from 
multiplication), money wages depend 
on the money price, and therefore on 
the cost of production, of the various 
articles which the labourers habitually 
consume : because if their wages can¬ 
not procure them a given quantity of 
these, their increase will slacken, and 
their wages rise. Of these articles, 
food and other agricultural produce 
are so mifch the principal, as to leave 
little influence to anything else. 

It is at this point that we are 
enabled to invoke the aid of the prin¬ 
ciples which have been laid down in 
this Third Part. The cost of produc¬ 
tion of food and agricultural produce 
has been analyzed in a preceding 
chapter. It depends on the produc¬ 
tiveness of the least fertile land, or of 
the least productively employed portion 
of capital, which the necessities of 


society have as yet put in requisition 
for agricultural purposes. The cost of 
production of food grown in these least 
advantageous circumstances, deter¬ 
mines, as we have seen, the exchange 
value and money price of the whole. 
In any given state, therefore, of the 
labourers’ habits, their money wages 
depend on the productiveness of the 
least fertile land, or least productive 
agricultural capital; on the point 
which cultivation has reached in its 
downward progress—in its encroach¬ 
ments on the barren lands, and its gra¬ 
dually increased strain upon the powers 
of the more fertile. Now, the force 
which urges cultivation in this down- 
ward course, is the increase of people; 
while the counter-force which checks 
the descent, is the improvement of 
agricultural science and practice, 
enabling the same soil to yield to the 
same labour more ample returns. The 
costliness of the most costly part of 
the produce of cultivation, is an exact 
expression of the state, at any given 
moment, of the race which population 
and agricultural skill are always run¬ 
ning against each other. 

§ 2. If is well said by Dr. Chalmers, 
that many of the most important 
lessons in political economy are to be 
learnt at the extreme margin of culti¬ 
vation, the last point which the culture 
of the soil has reached in its contest 
wi tli t he spontaneous agencies of nature. 
The degree of productiveness of this ex¬ 
treme margin, is an index to the exist¬ 
ing state of the distribution of the 
produce among the three classes, 
of labourers, capitalists, and land¬ 
lords. 

When the demand of an increasing 
population for more food cannot be 
satisfied without extending cultivation 
to less fertile land, or incurring addi¬ 
tional outlay, with a less proportional 
return, on land already in cultivation, 
it is a necessary condition of this in¬ 
crease of agricultural produce, that the 
value and price of that produce must 
first rise. But as soon as the price has 
risen sufficiently to give to the addi¬ 
tional outlay of capital the ordinary 
profit, the rise will not go on still fur- 

E E 





418 BOOK III. CHAPTER XXVI. § 3. 


ther for the purpose of enabling the 
new land, or the new expenditure on 
old land, to yield rent as well as profit. 
The land or capital last put in requisi¬ 
tion, and occupying what Dr. Chalmers 
calls the margin of cultivation, will 
yield, and continue to yield, no rent. 
But if this yields no rent, the rent 
afforded by all other land or agricul¬ 
tural capital will be exactly so much 
as it produces more than this. The 
price of food will always on the average 
be such, that the worst land, and the 
least productive instalment of the capi¬ 
tal employed on the better lands, shall 
just replace the expenses with the 
ordinary profit. If the least favoured 
land and capital just do thus much, 
all other land and capital will yield an 
extra profit, equal to the proceeds of 
the extra produce due to their superior 
productiveness; and this extra profit 
becomes, by competition, the prize of 
the landlords. Exchange, and money, 
therefore, make no difference in the 
law of rent: it is the same as we 
originally found it. Bent is the extra 
return made to agricultural capital 
when employed with peculiar advan¬ 
tages ; the exact equivalent of what 
those advantages enable the producers 
to economize in the cost of production : 
the value and price of the produce 
being regulated by the cost of pro¬ 
duction to those producers who have 
no advantages; by the return to that 
portion of agricultural capital, the cir¬ 
cumstances of which are the least 
favourable. 

§ 3. Wages and Bent being thus 
regulated by the same principles when 
paid in money, as they would be if 
apportioned in kind, it follows that 
Profits are so likewise. For the sur¬ 
plus, after replacing wages and paying 
rent, constitutes Profits. 

We found in the last chapter of the 
Second Book, that the advances of the 
capitalist, when analyzed to their ulti¬ 
mate elements, consist either in the 
purchase or maintenance of labour, or 
in the profits of former capitalists ; and 
that therefore profits in the last resort, 
depend upon the Cost of Labour, falling 
as that rises, and rising as it fails. Let 


us endeavour to trace more minutely 
the operation of this law. 

There are two modes in which the 
Cost of Labour, which is correctly re¬ 
presented (money being supposed in¬ 
variable) by the money wages of the 
labourer, may be increased. The la¬ 
bourer may obtain greater comforts; 
wages in kind—real wages—may rise. 
Or the progress of population may force 
down cultivation to inferior soils, and 
more costly processes ; thus raising the 
cost of production, the value, and the 
price, of the chief articles of the la¬ 
bourer’s consumption. On either of 
these suppositions, the rate of profit 
will fall. 

If the labourer obtains more abun¬ 
dant commodities, only by reason of 
their greater cheapness ; if he obtains 
a greater quantity, but not on the 
whole a greater cost; real wages will 
be increased, but not money wages, and 
there will be nothing to affect the rate 
of profit. But if he obtains a greater 
quantity of commodities of which the 
cost of production is not lowered, he 
obtains a greater cost; his money wages 
are higher. The expense of these in¬ 
creased money wages falls wholly on 
the capitalist. There are no conceiv¬ 
able means by which he can shake it 
off. It may be said—it used formerly 
to be said—that he will get rid of it 
by raising his price. But this opinion 
we have already, and more than once, 
fully refuted.* 

The doctrine, indeed, that a rise 
of wages causes an equivalent rise of 
prices, is, as we formerly observed, self¬ 
contradictory : for if it did so, it would 
not be a rise of wages; the labourer 
would get no more of any commodity 
than he had before, let his money wages 
rise ever so much; a rise of real wages 
would be an impossibility. This being 
equally contrary to reason and to fact, it 
is evident that a rise of money wages 
does not raise prices ; that high wages 
are not a cause of high prices. A rise 
of general wages falls on profits. There 
is no possible alternative. 

Having disposed of the case in which 
the increase of money wages, and of 

* Supra, book iii. ch. iv. § 2, and ch. xxv. 
§4. 




DISTRIBUTION AS AFFECTED BY EXCHANGE. 


the Cost of Labour, arises from the 
labourer’s obtaining more ample wages 
in kind, let us now suppose it to arise 
from the increased cost of production 
of the things which he consumes; 
owing to an increase of population, un¬ 
accompanied by an equivalent increase 
of agricultural skill. The augmented 
supply required by the population 
would not be obtained, unless the price 
of food rose sufficiently to remunerate 
the farmer for the increased cost of 
production. The farmer, however, in 
this case sustains a twofold disadvan¬ 
tage. He has to cany on his cultiva¬ 
tion under less favourable conditions 
of productiveness than before. For 
this, as it is a disadvantage belonging 
to him only as a farmer, and not shared 
by other employers, he will, on the 
general principles of value, be com¬ 
pensated by a rise of the price of his 
commodity: indeed, until this rise has 
taken place, he will not bring to market 
the required increase of produce. But 
this very rise of price involves him in 
another necessity, for which he is not 
compensated. He must pay higher 
money wages to his labourers. This 
necessity, being common to him with 
all other capitalists, forms no ground 
for a rise of price. The price will rise, 
until it has placed him in as good a 
situation in respect of profits, as other 
employers of labour: it will rise so 
as to indemnify him for the increased 
labour which he must now employ in 
order to produce a given quantity of 
food : but the increased wages of that 
labour are a burthen common to all, 
and for which no one can be indemnified. 
It will be paid wholly from profits. 

Thus we see chat increased wages, 
when common to all descriptions of pro¬ 
ductive labourers, and when really re¬ 
presenting a greater Cost of Labour, are 
always and necessarily at the expense of 
profits. And by reversing the cases, we 
should find in like manner that dimb 
nished wages, when representing a 
really diminished Cost of Labour, are 
equivalent to a rise of profits. But 
the opposition of pecuniary interest 
thus indicated between the class of 
capitalists and that of labourers, is to 
a great extent only apparent. Real 


419 

wages are a very different thing from 
the Cost of Labour, and are generally 
highest at the times and places where, 
from the easy terms on which the land 
yields all the produce as yet required 
from it, the value and price of food 
being low, the cost of labour to the 
employer, notwithstanding its ample 
remuneration, is comparatively cheap, 
and the rate of profit consequently 
high. We thus obtain a full con¬ 
firmation of our original theorem, that 
Profits depend on the Cost of Labour: 
or, to express the meaning with still 
greater accuracy, the rate of profit and 
the cost of labour vary inversely as one 
another, and are joint effects of the 
same agencies or causes. 

But does not this proposition require 
to be slightly modified, by making al¬ 
lowance for that portion (though com¬ 
paratively small) of the expenses of 
the capitalist, which does not consist 
in wages paid by himself or reim¬ 
bursed to previous capitalists, but in 
the profits of those previous capitalists ? 
Suppose, for example, an invention in 
the manufacture of leather, the advan¬ 
tage of which should consist in ren¬ 
dering it unnecessary that the hides 
should remain for so great a length 
of time in the tan-pit. Shoemakers, 
saddlers, and other workers in leather, 
would save a part of that portion of the 
cost of their material which consists of 
the tanner’s profits during the time his 
capital is locked up; and this saving, 
it may be said, is a source from which 
they might derive an increase of profit, 
though wages and the Cost of Labour 
remained exactly the same. In the 
case here supposed, however, the con¬ 
sumer alone would benefit, since the 
prices of shoes, harness, and all other 
articles into which leather enters, 
would fall, until the profits of the 
producers were reduced to the general 
level. To obviate this objection, let 
us suppose that a similar saving of 
expenses takes place in all depart¬ 
ments of production at once. In that 
case, since values and prices would not 
be affected, profits would probably be 
raised; but if we look more closely into 
the case we shall find that it is because 
the cost of labour would be lowered. 

E E 2 



BOOK III. CHAPTER XXVI. § 3. 


420 

In this as in any other case of increase 
in the general productiveness of labour, 
if the labourer obtained only the same 
real wages, profits would he raised: 
but the same real wages would imply 
a smaller Cost of Labour; the cost of 
roduction of all things having been, 
y the supposition, diminished. If, 
on the other hand, the real wages of 
labour rose proportionally, and the Cost 
of Labour to the employer remained 
the same, the advances of the capi¬ 
talist would bear the same ratio to his 
returns as before, and the rate of profit 
v?ould be unaltered. The reader who 
may wish for a more minute examina¬ 


tion of this point, will find it in the 
volume of separate Essays to which 
reference has before been made.* The 
question is too intricate in comparison 
with its importance, to be further en¬ 
tered into in a work like the present; 
and I will merely say, that it seems to 
result from the considerations adduced 
in the Essay, that there is nothing in 
the case in question to affect the inte¬ 
grity of the theory which affirms an 
exact correspondence, in an inverse 
direction, between the rate of profit 
and the Cost of Labour. 


* Essay IV. on Profits and Interest. 




BOOK IV. 


INFLUENCE OF THE PROGRESS OF SOCIETY 
ON PRODUCTION AND DISTRIBUTION. 

CHAPTER L 

GENERAL CHARACTERISTICS OF A PROGRESSIVE STATE OF 'WEALTH. 


§ 1. The three preceding Parts in¬ 
clude as detailed a view as our limits 
permit, of what, hy a happy generaliza¬ 
tion of a mathematical phrase, has been 
called the Statics of the subject. We 
have surveyed the field of economical 
facts, and have examined how they 
stand related to one another as causes 
and effects ; what circumstances deter¬ 
mine the amount of production, of em¬ 
ployment for labour, of capital and 
population; what laws regulate rent, 
profits, and wages ; under what condi¬ 
tions and in what proportions commodi¬ 
ties are interchanged between indivi¬ 
duals and between countries. We have 
thus obtained a collective, view of the 
economical phenomena of society, con¬ 
sidered as existing simultaneously. We 
have ascertained, to a certain extent, 
the principles of their interdependence; 
and when the state of some of the ele¬ 
ments is known, we should now be able 
to infer, in a general way, the contem¬ 
poraneous state of most of the others. 
All this, however, has only put us in 
possession of the economical laws of a 
stationary and unchanging society. 
We have still .to consider the econo¬ 
mical condition of mankind as liable to 
change, and indeed (in the more ad¬ 
vanced portions of the race, and in all 
regions to which their influence reaches) 
as at all times undergoing progressive 
changes. We have to consider what 
these changes are, what are their laws, 
and what their ultimate tendencies; 
thereby adding a theory of motion to our 


theory of equilibrium—the Dynamics 
of political economy to the Statics. 

In this inquiry, it is natural to com¬ 
mence by tracing the operation of 
known and acknowledged agencies. 
Whatever may be the other .changes 
which the economy of society is des¬ 
tined to undergo, there is one actually 
in progress, concerning which there can 
be no dispute. In the leading countries 
of the world, and in all others as they 
come within the influence of those lead¬ 
ing countries, there is at least one pro¬ 
gressive movement which continues 
with little interruption from year to 
year and from generation to genera¬ 
tion ; a progress in wealth; an ad¬ 
vancement in what is called material 
prosperity. All the nations which we 
are accustomed to call civilized, in¬ 
crease gradually in production and in 
population : and there is no reason to 
doubt, that not only these nations will 
for some time continue so to increase, 
but that most of the other nations of 
the world, including some not yet 
founded, will successively enter upon 
the same career. It will, therefore, be 
our first object to examine the nature 
and consequences of this progressive 
change ; the elements which constitute 
it, and the effects it produces on the 
various economical facts of which we 
have been tracing the laws, and espe¬ 
cially on wages, profits, rents, values, 
and prices. 

§ 2. Of the features which charac- 




BOOK IV. CHAPTER I. § 2. 


422 

terize this progressive economical move¬ 
ment of civilized nations, that which first 
excites attention, through its intimate 
connexion with the phenomena of Pro¬ 
duction, is the perpetual, and so far as 
human foresight can extend, the un¬ 
limited, growth of man’s power over 
nature. Our knowledge of the proper¬ 
ties and laws of physical objects shows 
no sign of approaching its ultimate 
boundaries: it is advancing more ra¬ 
pidly, and in a greater number of direc¬ 
tions at once, than in any previous age 
or generation, and affording such fre¬ 
quent glimpses of unexplored fields be¬ 
yond, as to justify the belief that our 
acquaintance with nature is still almost 
in its infancy. This increasing phy¬ 
sical knowledge is now, too, more ra¬ 
pidly than at any former period, con¬ 
verted by practical ingenuity, into phy¬ 
sical power. The most marvellous of 
modern inventions, one which realizes 
the imaginary feats of the magician, 
not metaphorically but literally—the 
electro-magnetic telegraph — sprang 
into existence but a few years after 
the establishment of the scientific 
theory which it realizes and exempli¬ 
fies. Lastly, the manual part of these 
great scientific operations is now never 
wanting to the intellectual: there is no 
difficulty in finding or forming, in a suf¬ 
ficient number of the working hands of 
the community, the skill requisite for 
executing the most delicate processes 
of the application of science to prac¬ 
tical uses. From this union of condi¬ 
tions, it is impossible not to look for¬ 
ward to a vast multiplication and long 
succession of contrivances for econo¬ 
mizing labour and increasing its pro¬ 
duce ; and to an ever wider diffusion 
of the use and benefit of those contri¬ 
vances. 

Another change which has always 
hitherto characterized, and will as¬ 
suredly continue to characterize, the 
progress of civilized society, is a con¬ 
tinual increase of the security of person 
and property. The people of every 
country in Europe, the most backward 
as well as the most advanced, are, in 
each generation, better protected 
against the violence and rapacity of 
one another both by a more efficient 


judicature and police for the suppres¬ 
sion of private crime, and by the decay 
and destruction of those mischievous 
privileges which enabled certain classes 
of the community to prey with impunity 
upon the rest. They are also, in every 
generation, better protected, either by 
institutions or by manners and opinion, 
against arbitrary exercise of the power 
of government. Even in semi-barba¬ 
rous Russia, acts of spoliation directed 
against individuals, who have not made 
themselves politically obnoxious, are 
not supposed to be now so frequent as 
much to affect any person’s feelings of 
security. Taxation, in all European 
countries, grows less arbitrary and op¬ 
pressive, both in itself and in the man¬ 
ner of levying it. Wars, and the de¬ 
struction they cause, are now usually 
confined, in almost every country, to 
those distant and outlying possessions 
at which it conies into contact with 
savages. Even the vicissitudes of for¬ 
tune which arise from inevitable na¬ 
tural calamities, are more and more 
softened to those on whom they fall, by 
the continual extension of the salutary 
practice of insurance. 

Of this increased security, one of 
the most unfailing effects is a great 
increase both of production and of ac¬ 
cumulation. Industry and frugality 
cannot exist, where there is not a pre¬ 
ponderant probability that those who 
labour and spare will be permitted to 
enjoy. And the nearer this probability 
approaches to certainty, the more do 
industry and frugality become per¬ 
vading qualities in a people. Experi¬ 
ence has shown that a large proportion 
of the results of labour and abstinence 
may be taken away by fixed taxation, 
without impairing, and sometimes even 
with the effect of stimulating, the 
qualities from which a great production 
and an abundant capital take their 
rise. But those qualities are not 
proof against a high degree of uncer¬ 
tainty. The government may carry 
off a part; but there must be assurance 
that it will not interfere, nor sutler 
any one to interfere, with the re¬ 
mainder. 

One of the changes which most in¬ 
fallibly attend the progress of modern 



PROGRESSIVE STATE OF WEALTH. 423 


society, is an improvement in the busi¬ 
ness capacities of the general mass of 
mankind. I do not mean that the 
practical sagacity of an individual 
human being is greater than formerly. 
I am inclined to believe that econo¬ 
mical progress has hitherto had even a 
contrary effect. A person of good na¬ 
tural endowments, in a rude state of 
society, can do a greater number of 
things tolerably well, has a greater 
power of adapting means to ends, is 
more capable of extricating himself 
and others from an unforeseen embar¬ 
rassment, than ninety-nine in a hun¬ 
dred of those who have known only 
what is called the civilized form of life. 
How far these points of inferiority of 
faculties are compensated, and by what 
means they might be compensated still 
more completely, to the civilized man 
as an individual being, is a question 
belonging to a different inquiry from 
the present. But to civilized human 
beings collectively considered, the com¬ 
pensation is ample. What is lost in 
the separate efficiency of each, is far 
more than made up by the greater ca¬ 
pacity of united action. In proportion 
as they put off the qualities of the 
savage, they become amenable to dis¬ 
cipline ; capable of adhering to plans 
concerted beforehand, and about which 
they may not have been consulted; of 
subordinating their individual caprice 
to a precouceived determination, and 
performing severally the parts allotted 
to them in a combined undertaking. 
Works of all sorts, impracticable to the 
savage or the lialf-civilized, are daily 
accomplished by civilized nations, not 
by any greatness of faculties in the 
actual agents, but through the fact 
that each is able to rely with certainty 
on the others for the portion of the work 
which they respectively undertake. 
The peculiar characteristic, in short, of 
civilized beings, is the capacity of co¬ 
operation ; and this, like other facul¬ 
ties, tends to improve by practice, and 
becomes capable of assuming a con¬ 
stantly wider sphere of action. 

Accordingly there is no more certain 
incident of the progressive change 
taking place in society, than the con¬ 
tinual growth of the principle and 


practice of co-operation. Associations 
of individuals voluntarily combining 
their small contributions, now perform 
works, both of an industrial and of 
many other characters, which no one 
person or small number of persons are 
rich enough to accomplish, or for the 
performance of which the few persons 
capable of accomplishing them were 
formerly enabled to exact the most 
inordinate remuneration. As wealth 
increases and business capacity im 
proves, we may look forward to a great 
extension of establishments, both for 
industrial and other purposes, formed 
by the collective contributions of large 
numbers; establishments like those 
called by the technical name of joint- 
stock companies, or the associations 
less formally constituted, which are so 
numerous in England, to raise funds 
for public or philanthropic objects, or 
lastly, those associations of workpeople, 
either for production or to buy goods 
for their common consumption, which 
are now specially known by the name 
of co-operative societies. 

The progress which is to be expected 
in the physical sciences and arts, com¬ 
bined with the greater security of pro¬ 
perty, and gi'eater freedom in disposing 
of it, which are obvious features in the 
civilization of modern nations, and 
with the more extensive and more 
skilful employment of the joint-stock 
principle, afford space and scope for an 
indefinite increase of capital and pro¬ 
duction, and for the increase of popula¬ 
tion which is its ordinary accompani¬ 
ment. That the growth of population 
will overpass the increase of produc¬ 
tion, there is not much reason to ap¬ 
prehend ; and that it should even keep 
pace with it, is inconsistent with the 
supposition of any real improvement 
in the poorest classes of the people. It 
is, however, quite possible that there 
might be a great progress in industrial 
improvement, and in the signs of what 
is commonly called national prosperity; 
a great increase of aggregate wealth, 
and even, in some respects, a better 
distribution of it; that not only the 
rich might grow richer, but many of 
the poor might grow rich, that the 
intermediate classes might become 



424 BOOK IV. CHAPTER II. § 1. 


more numerous and powerful, and the 
means of enjoyable existence be more 
and more largely diffused, while yet 
the great class at the base of the whole 
might increase in numbers only, and 
not in comfort nor in cultivation. We 
must, therefore, in considering the 
effects of the progress of industry, 
admit as a supposition, however greatly 
we deprecate as a fact, an increase of 


population as long-continued, as Inde¬ 
finite, and possibly even as rapid, as 
the increase of production and accu¬ 
mulation. 

With these preliminary observations 
on the causes of change at work in a 
society which is in a state of econo¬ 
mical progress, I proceed to a more 
detailed examination of the changes 
themselves. 


CHAPTER n. 

INFLUENCE ON THE PROGRESS OF INDUSTRY AND POPULATION ON 

VALUES AND PRICES. 


§ 1. The changes which the pro¬ 
gress of industry causes or presupposes 
in the circumstances of production, are 
necessarily attended with changes in 
the values of commodities. 

The permanent values of all things 
which are neither under a natural nor 
under an artificial monopoly, depend, 
as we have seen, on their cost of pro¬ 
duction. But the increasing power 
which mankind are constantly ac¬ 
quiring over nature, increases more 
and more the efficiency of human 
exertion, or in other words, diminishes 
cost of production. All inventions by 
which a greater quantity of any com¬ 
modity can be produced with the same 
labour, or the same quantity with less 
labour, or which abridge the process, 
so that the capital employed needs not 
be advanced for so long a time, lessen 
the cost of production of the com¬ 
modity. As, hoivever, value is relative ; 
if inventions and improvements in pro¬ 
duction were made in all commodities, 
and all in the same degree, there would 
be no alteration in values. Things 
would continue to exchange for each 
other at the same rates as before ; and 
mankind would obtain a greater quan¬ 
tity of all things in return for their 
lauour and abstinence, without having 
that greater abundance measured and 
declared (as it is when it affects only 
one thing) by the diminished exchange 
value of the commodity. 


As for prices, in these circumstances 
they would be affected or not, accord¬ 
ing as the improvements in production 
did or did not extend to the precious 
metals. If the materials of money 
w’ere an exception to the general dimi¬ 
nution of cost of production, the values 
of all other things would fall in relation 
to money, that is, there would be a fall 
of general prices throughout the world. 
But if money, like other things, and in 
the same degree as other things, were 
obtained in greater abundance and 
cheapness, prices would be no more 
affected than values would ; and there 
would be no visible sign, in the state 
of the markets, of any of the changes 
which had taken place ; except that 
there would be (if people continued to 
labour as much as before) a greater 
quantity of all sorts of commodities, 
circulated at the same prices by a 
greater quantity of money. 

Improvements in production are not 
the only circumstance accompanying 
the progress of industry, which tends 
to diminish the cost of producing, or at 
least of obtaining, commodities. An¬ 
other circumstance is the increase of 
intercourse between different parts of 
the world. As commerce extends, and 
the ignorant attempts to restrain it by 
tariffs become obsolete, commodities 
tend more and more to be produced in 
the places in which their production 
can be carried on at the least expense 





IXFLUCENE OF INDUSTRI 

of labour and capital tc mankind. As 
civilization spreads, and security of 
person and property becomes esta¬ 
blished, in parts of the world which 
have not hitherto had that advantage, 
the productive capabilities of those 
places are called into fuller activity, 
tor the benefit both of their own inha¬ 
bitants and of foreigners. The igno¬ 
rance and nongovernment in which 
many of the regions most favoured by 
nature are still grovelling, afford work, 
probably, for many generations before 
those countries will be raised even to 
the present level of the most civilized 
parts of Europe. Much will also depend 
on the increasing migration of labour 
and capital to unoccupied parts of the 
earth, of which the soil, climate, and 
situation are found, by the ample means 
of exploration now possessed, to pro¬ 
mise not only a large return to in¬ 
dustry, but great facilities of producing 
commodities suited to the markets of 
old countries. Much as the collective 
industry of the earth is likely to be 
increased in efficiency by the extension 
of science and of the industrial arts, a 
still more active source of increased 
cheapness of production will be found, 
probably, for some time to come, in the 
gradually unfolding consequences of 
Free Trade, and in the increasing scale 
on which Emigration and Colonization 
will be carried on. 

From the causes now enumerated, 
unless counteracted by others, the 
progress of things enables a country to 
obtain at less and less of real cost, not 
only its own productions but those of 
foreign countries. Indeed, whatever 
diminishes the cost of its own produc¬ 
tions, when of an exportable character, 
enables it, as we have already seen, to 
obtain its imports at less real cost. 

§ 2. But is it the fact, that these 
tendencies a^e not counteracted? Has 
the progress of wealth and industry no 
effect in regard to cost of production, 
but to diminish it ? Are no causes of 
an opposite character brought into 
operation by the same progress, suf¬ 
ficient in some cases not only to neu¬ 
tralize but to overcome the former, and 
convert the descending movement of 


AL PROGRESS ON PRICES. 425 

cost of production into an ascending 
movement? We are already aware 
that there are such causes, and that, 
in the case of the most important 
classes of commodities, food and mate¬ 
rials, there is a tendency diametrically 
opposite to that of which we have been 
speaking. The cost of production of 
these commodities tends to increase. 

This is not a property inherent in 
the commodities themselves. If popu¬ 
lation were stationary, and the produce 
of the earth never needed to be aug¬ 
mented in quantity, there would be no 
cause for greater cost of production. 
Mankind would, on the contrary, have 
the full benefit of all improvements in 
agriculture, or in the arts subsidiary to 
it, and there would be no difference, in 
this respect, between the products of 
agriculture and those of manufactures. 
The only products of industry which, if 
population did not increase, would be 
liable to a real increase of cost of pro¬ 
duction, are those which, depending on 
a material which is not renewed, are 
either wholly or partially exhaustible ; 
such as coal, and most if not all metals ; 
for even iron, the most abundant as 
well as most useful of metallic products, 
which forms an ingredient of most 
minerals and of almost all rocks, is 
susceptible of exhaustion so far as 
regards its richest and most tractable 
ores. 

When, however, population in¬ 
creases, as it has never yet failed to 
do when the increase of industry and 
of the means of subsistence made room 
for it, the demand for most of the pro¬ 
ductions of the earth, and particularly 
for food, increases in a corresponding 
proportion. And then comes into 
effect that fundamental law of produc¬ 
tion from the soil, on which we have so 
frequently had occasion to expatiate ; 
the law, that increased labour, in any 
given state of agricultural skill, is 
attended with a less than proportional 
increase of produce. The cost of pro¬ 
duction of the fruits of the earth in¬ 
creases, cceteris paribus , with every 
increase of the demand. 

No tendency of a like kind exists 
with respect to manufactured articles. 
The tendency is in the contrary direc- 



426 BOOK IV. CHAPTER II. § 3. 


tion. The larger the scale on which 
manufacturing operations are carried 
on, the more cheaply they can in 
general he performed. Mr. Senior has 
gone the length of enunciating as an 
inherent law of manufacturing in¬ 
dustry, that in it increased production 
takes place at a smaller cost, while in 
agricultural industry increased produc¬ 
tion takes place at a greater cost.* I 
cannot think, however, that even in 
manufactures, increased cheapness fol¬ 
lows increased production by anything 
amounting to a law. It is a probable 
and usual, but not a necessary, con¬ 
sequence. 

As manufactures, however, depend 
for their materials either upon agricul¬ 
ture, or mining, or the spontaneous 
produce of the earth, manufacturing 
industry is subject, in respect of one 
of its essentials, to the same law as 
agriculture. But the crude material 
generally forms so small a portion of 
the total cost, that any tendency which 
may exist to a progressive increase in 
that single item, is much over-balanced 
by the diminution continually taking 
place in all the other elements; to 
which diminution it is impossible at 
present to assign any limit. 

The tendency, then, being to a per¬ 
petual increase of the productive 
power of labour in manufactures, while 
in agriculture and mining there is a 
conflict between two tendencies, the 
one towards an increase of productive 
power, the other towards a diminution 
of it, the cost of production being les¬ 
sened by every improvement in the 
processes, and augmented by every 
addition to population ; it follows that 
the exchange values of manufactured 
articles, compared with the products of 
agriculture and of mines, have, as 
population and industry advance, a 
certain and decided tendency to fall. 
Money being a product of mines, it 
may also be laid down as a rule, that 
manufactured articles tend, as society 
advances, to fall in money price. The 
industrial history of modern nations, 
especially during the last hundred 
years, fully bears out this assertion. 

§ 3. "Whether agricultural produce 


increases in absolute as well as com¬ 
parative cost of production, depends on 
the conflict of the two antagonist 
agencies, increase of population, and 
improvement in agricultural skill. In 
some, perhaps in most, states of society, 
(looking at the whole surface of the 
earth,) both agricultural skill and 
population are either stationary, or 
increase very slowly, and the cost of 
production of food, therefore, is nearly 
stationary. In a society which is 
advancing in wealth, population gene¬ 
rally increases faster than agricultural 
skill, and food consequently tends to 
become more costly; but there are 
times when a strong impulse sets in 
towards agricultural improvement. 
Such an impulse has shown itself in 
Great Britain during the last twenty 
or five-and-twenty years. In England 
and Scotland agricultural skill has of 
late increased considerably faster than 
population, insomuch that food and 
other agricultural produce, notwith¬ 
standing the increase of people, can be 
grown at less cost than they were 
thirty years ago : and the abolition of 
the Corn Laws has given an additional 
stimulus to the spirit of improvement. 
In some other countries, and particu¬ 
larly in France, the improvement of 
agriculture gains ground still more 
decidedly upon population, because 
though agriculture, except in a few 
provinces, advances slowly, population 
advances still more slowly, and even 
with increasing slowness ; its growth 
being kept down, not by poverty, which 
is diminishing, but by prudence. 

W hich of the two conflicting 
agencies is gaining upon the other at 
any particular time, might be conjec¬ 
tured with tolerable accuracy from the 
money price of agricultural produce 
(supposing bullion not to vary mate¬ 
rially in value), provided a sufficient 
number of years could be taken, to 
form an average independent of the 
fluctuations of seasons. This, however, 
is hardly practicable, since Mr. Tooke 
has shown that even so long a period 
as half a century may include a much 
greater proportion of abundant and a 
smaller of deficient seasons, than is 
properly due to'it. A mere average, 






INFLUENCE OF INDUSTRIAL PROGRESS ON PRICES. 427 


therefore, might lead to conclusions 
only the more misleading, for their de¬ 
ceptive semblance of accuracy. r l here 
would be less danger of error in taking 
the average of only a small number of 
years, and correcting it by a conjec¬ 
tural allowance for the character of the 
seasons, than in trusting to a longer 
average without any such correction. 
It is hardly necessary to add, that in 
founding conclusions on quoted prices, 
allowance must also be made as far 
as possible for any changes in the 
general exchange value of the precious 
metals.* 

§ 4. Thus far, of the effect of the 
progress of society on the permanent 
or average values and prices of com¬ 
modities. It remains to be considered, 
in what manner the same progress 
affects their fluctuations. Concerning 
the answer to this question there can 
be no doubt. It tends in a very high 
degree to diminish them. 

In poor and backward societies, as 
in the East, and in Europe during the 
middle ages, extraordinary differences 
in the price of the same commodity 
might exist in places not very 
distant from each other, because the 
want of roads and canals, the imper¬ 
fection of marine navigation, and the 
insecurity of communications generally, 
prevented things from being trans¬ 
ported from the places where they were 
cheap tc those where they were dear. 
The things most liable to fluctuations 
in value, those directly influenced by 
the seasons, and especially food, were 
seldom carried to any great distances. 
Each locality depended, as a general 
rule, on its own produce and that of 
its immediate neighbourhood. In most 
years, accordingly, there was, in some 
part or other of any large country, a 
real dearth. Almost every season must 
be unpropitious to some among the 
many soils and climates to be found in 
an extensive tract of country; but as 
the same season is also in general more 

* A still better criterion, perhaps, than 
that suggested in the text, would be the 
increase or diminution of the amount of the 
labourer's wages estimated in agricultural 
produce. 


than ordinarily favourable to others, it 
is only occasionally that the aggregate 
produce of the whole country is de¬ 
ficient, and even then in a less degree 
than that of many separate portions; 
while a deficiency at- all considerable, 
extending to the whole world, is a 
thing almost unknown. In modern 
times, therefore, there is only dearth, 
where there formerly would have been 
famine, and sufficiency everywhere 
when anciently there would have been 
scarcity in some place? and superfluity 
in others. 

The same change has taken place 
with respect to all other articles of 
commerce. The safety and cheapness 
of communications, which enable a 
deficiency in one place to be supplied 
from the surplus of another, at a mode¬ 
rate or even a small advance on the 
ordinary price, render the fluctuations 
of prices much less extreme than for¬ 
merly. This effect is much promoted 
by the existence of large capitals, be¬ 
longing to what are called speculative 
merchants, whose business it is to buy 
goods in order to resell them at a profit. 
These dealers naturally buying things 
when they are cheapest, and storing 
them up to be brought again into the 
market when the price has become un¬ 
usually high; the tendency of their 
operations is to equalize price, or at 
least to moderate its inequalities. The 
prices of things are neither so much 
depressed at one time, nor so much 
raised at another, as they would be if 
speculative dealers did not exist. 

Speculators, therefore, have a highly 
useful office in the economy of society ; 
and (contrary to common opinion) the 
most useful portion of the class are 
those who speculate in commodities 
affected by the vicissitudes of seasons. 
If there were no corn-dealers, not only 
would the price of corn be liable to 
variations much more extreme than at 
present, but in a deficient season the 
necessary supplies might not be forth¬ 
coming at all. Unless there were 
speculators in corn, or unless, in de¬ 
fault of dealers, the farmers became 
speculators, the price in a season of 
abundance would fall without any limit 
or check, except the wasteful consump- 




BOOK IV. CHAPTER II. § 5. 


428 

tion that would invariably follow. That 
any part of the surplus of one year 
remains to supply the deficiency of 
another, is owing either to farmers 
who withhold corn from the market, 
or to dealers who buy it when at the 
cheapest and lay it up in store. 

§ 5. Among persons who have not 
much considered the subject, there is a 
notion that the gains of speculators are 
often made by causing an artificial 
scarcity; that they create a high price 
by their own purchases, and then profit 
by it. This may easily be shown to be 
fallacious. If a corn-dealer makes pur¬ 
chases on speculation, and produces a 
rise, when there is neither at the time 
nor afterwards any cause for a rise of 
price except his own proceedings ; he 
no doubt appears to grow richer as 
long as his purchases continue, because 
he is a holder of an article which is 
quoted at a higher and higher price: 
but this apparent gain only seems 
within his reach so long as he does 
not attempt to realize it. If he has 
bought, for instance, a million of quar¬ 
ters, and by withholding them from 
the market, has raised the price ten 
shillings a quarter; just so much as 
the price has been raised by with¬ 
drawing a million quarters, will it be 
lowered by bringing them back, and 
the best that he can hope is that he 
will lose nothing except interest and 
his expenses. If by a gradual and 
cautious sale he is able to realize, on 
some portion of his stores, a part of the 
increased price, so also he will un¬ 
doubtedly have had to pay a part of 
that price on some portion of his pur¬ 
chases. He runs considerable risk of 
incurring a still greater loss ; for the 
temporary high price is very likely to 
have tempted others, who had no share 
in causing it, and who might other¬ 
wise not have found their way to his 
market at all, to bring their corn there, 
and intercept a part of the advantage. 
So that instead of profiting by a 
scarcity caused by himself, he is by no 
means unlikely, after buying in an 
average market, to be forced to sell in 
a superabundant one. 

As an individual speculator cannot 


gain by a rise of price solely of his 
own creating, so neither can a number 
of speculators gain collectively by a 
rise, which their operations have ar¬ 
tificially produced. Some among a 
number of speculators may gain, by 
superior judgment or good fortune in 
selecting the time for realizing; but 
they make this gain at the expense, 
not of the consumer, but of the other 
speculators who are less judicious. 
They, in fact, convert to their own 
benefit the high price produced by the 
speculations of the others, leaving to 
these the loss resulting from the recoil. 
It is not to be denied, therefore, that 
speculators may enrich themselves by 
other people’s loss. But it is by the 
losses of other speculators. As much 
must have been lost by one set of 
dealers as is gained by another set. 

When a speculation in a commodity 
proves profitable to the speculators as 
a body, it is because in the interval 
between their buying and reselling, 
the price rises from some cause inde¬ 
pendent of them, their only connexion 
with it consisting in having foreseen 
it. In this case, their purchases make 
the price begin to rise sooner than it 
otherwise would do, thus spreading 
the privation of the consumers over a 
longer period, but mitigating it at the 
time of its greatest height: evidently 
to the general advantage. In this, 
however, it is assumed that they have 
not overrated the rise which they 
looked forward to. For it often hap¬ 
pens that speculative purchases are 
made in the expectation of some in¬ 
crease of demand, or deficiency of 
supply, which after all does not occur, 
or not to the extent which the specu¬ 
lator expected. In that case the specu¬ 
lation, instead of moderating fluctua¬ 
tions, has caused a fluctuation of price 
which otherwise would not have hap¬ 
pened, or aggravated one which would. 
But in that case the speculation is a 
losing one, to the speculators collec¬ 
tively, however much some individuals 
may gain by it. All that part of the 
rise of price by which it exceeds what 
there are independent grounds for, 
cannot give to the speculators as a 
body any benefit, since the price is * s 




INFLUENCE OF INDUSTRIAL PROGRESS ON PRICES. 429 


much depressed by their sales as it was 
raised by their purchases ; and while 
they gain nothing by it, they lose, not 
only their trouble and expenses, but 
almost always much more, through the 
effects incident to the artificial rise of 
price, in checking consumption, and 
bringing forward supplies from unfore¬ 
seen quarters. The operations, there¬ 
fore, of speculative dealers, are useful 
to the public whenever profitable to 
themselves; and though they are 
sometimes injurious to the public, by 
heightening the fluctuations which 
their more usual office is to alleviate, 
yet whenever this happens the specu¬ 
lators are the greatest losers. The in¬ 
terest, in short, of the speculators as a 
body, coincides with the interest of the 
public; and as they can only fail to 
serve the public interest in proportion 
as they miss their own, the best way 
to promote the one is to leave them to 
pursue the other in perfect freedom. 

I do not deny that speculators may 
aggravate a local scarcity. In col¬ 
lecting corn from the villages to supply 
the towns, they make the dearth 
penetrate into nooks and corners 
which might otherwise have escaped 
from bearing their share of it. To buy 
and resell in the same place, tends to 
alleviate scarcity : to buy in one place 
and resell in another, may increase it 
in the former of the two places, but 
relieves it in the latter, where the 
price is higher, and which therefore, 
by the very supposition, is likely to be 
4 suffering more. And these sufferings 
always fall hardest on the poorest 
consumers, since the rich, by out¬ 
bidding, can obtain their accustomed 
supply undiminished if they choose. 
To no persons, therefore, are the ope¬ 
rations of corn-dealers on the whole so 
beneficial as to the poor. Accidentally 
and exceptionally, the poor may suffer 
from them: it might sometimes be 
more advantageous to the rural poor 
to have corn cheap in winter, when 
they are entirely dependent on it, even 
if the consequence were a dearth in 
spiing, when they can perhaps obtain 
partial substitutes. But there are no 
substitutes, procurable at that season, 
which serve in any great degree to 


replace bread-corn as the chief article 
of food : if there were, its price would 
fall in the spring, instead of con¬ 
tinuing, as it always does, to rise till 
the approach of harvest. 

There is an opposition of immediate 
interest, at the moment of sale, be¬ 
tween the dealer in corn and the con. 
sinner, as there always is between the 
seller and the buyer : and a time of 
dearth being that in which the specu¬ 
lator makes his largest profits, he is 
an object of dislike and jealousy at 
that time, to those who are suffering 
while he is gaining. It is an error, 
however, to suppose that the corn- 
dealer’s business affords him any ex¬ 
traordinary profit; he makes his gains 
not constantly, but at particular times, 
and they must therefore occasionally 
be great, but the chances of profit in 
a business in which there is so much 
competition, cannot on the whole be 
greater than in other employments. 
A year of scarcity, in which great 
gains are made by corn-dealers, rarely 
comes to an end without a recoil 
which places many of them in the list 
of bankrupts. There have been few 
more promising seasons for corn- 
dealers than the year 1847, and 
seldom was there a greater break-up 
among the speculators than in the 
autumn of that year. The chances of 
failure, in this most precarious trade, 
are a set-off against great occasional 
profits. If the corn-dealer were to 
sell his stores, during a dearth, at a 
lower price than that which the 
competition of the consumers assigns 
to him, he would make a sacrifice, to 
charity or philanthropy, of the fair 
profits of his employment, which may 
be quite as reasonably required from 
any other person of equal means. 
His business being a useful one, it is 
the interest of the public that the 
ordinary motives should exist for car¬ 
rying it on, and that neither law nor 
opinion should prevent an operation 
beneficial to the public from being 
attended with as much private ad¬ 
vantage as is compatible with full and 
free competition. 

It appears, then, that the fluctua¬ 
tions of values and prices arising from 




430 BOOK IV. CIL 1 

variations of supply, or from alterations 
in real (as distinguished from specu¬ 
lative) demand, may be expected to 
become more moderate as society 
advances. With regard to those 
which arise from miscalculation, and 
especially from the alternations of 
undue expansion and excessive con¬ 
traction of credit, which occupy so 
conspicuous a place among commercial 
phenomena, the same thing cannot be 
affirmed with equal confidence. Such 
vicissitudes, beginning with irrational 
speculation and ending with a com¬ 
mercial crisis, have not hitherto be- 


A.PTER in. § 1. 

come either less frequent or less 
violent with the growth of capital 
and extension of industry. Rather 
they may be said to have become 
more so : in consequence, as is often 
said, of increased competition ; but, as 
I prefer to say, of a low rate of profits 
and interest, which makes capitalists 
dissatisfied with the ordinary course 
of safe mercantile gains. The con¬ 
nexion of this low rate of profit with 
the advance of population and accu¬ 
mulation, is one of the points to be 
illustrated in the ensuing chapters. 


CHAPTER III. 


INFLUENCE OF THE PROGRESS OF INDUSTRY AND POPULATION ON RENTS, 

PROFITS, AND WAGES. 


§ 1. Continuing the inquiry into 
the nature of the economical changes 
taking place in a society which is in 
a state of industrial progress, we shall 
next consider what is the effect of that 
progress on the distribution of the 
produce among the various classes who 
share in it. We may confine our at¬ 
tention to the system of distribution 
which is the most complex, and which 
virtually includes all others—that in 
which the produce of manufactures is 
shared between two classes, labourers 
and capitalists, and the produce of 
agriculture among three, labourers, 
capitalists, and landlords. 

The characteristic features of what 
is commonly meant by industrial pro¬ 
gress, resolve themselves mainly into 
three—increase of capital, increase of 
population, and improvements in pro¬ 
duction ; understanding the last ex¬ 
pression in its widest sense, to include 
the process of procuring commodities 
from a distance, as well as that of pro¬ 
ducing them. The ether changes 
which take place are chiefly conse¬ 
quences of these ; as, for example, the 
tendency to a progressive increase of 
the cost of production of food; arising 


from an increased demand, which may 
be occasioned either by increased popu¬ 
lation, or by an increase of capital and 
wages, enabling the poorer classes to 
increase their consumption. It will 
be convenient to set out by consider¬ 
ing each of the three causes, as 
operating separately; after which we 
can suppose them combined in any 
manner we think fit. 

Let us first suppose that population 
increases, capital and the arts of pro¬ 
duction remaining stationary. One of 
the effects of this change of circum¬ 
stances is sufficiently obvious : wages 
will fall; the labouring class will be 
reduced to an inferior condition. The 
state ot the capitalist, on the contrary, 
will be improved. With the same 
capital, he can purchase more labour, 
and obtain more produce. His rate of 
profit is increased. The dependence 
of the rate of profits on the cost of 
labour is here verified; for the labourer 
obtaining a diminished quantity of 
commodities, and no alteration being 
supposed in the circumstances of their 
production, the diminished quantity 
represents a diminished cost. The 
labourer obtains not only a smaller 





INFLUENCE OF PROGRESS 

real reward, but the product of a 
smaller quantity of labour. The first 
circumstance is the important one 
to himself, the last to his employer. 

Nothing has occurred, thus far, to 
affect in any way the value of any 
commodity ; and no reason, therefore, 
has yet shown itself, why rent should 
be either raised or lowered. But if 
we look forward another stage in the 
series of effects, we may see our way 
to such a consequence. The labourers 
have increased in numbers: their 
condition is reduced in the same pro¬ 
portion ; the increased numbers divide 
among them only the produce of the 
same amount of labour as before. But 
they may economize in their other 
comforts, and not in their food: each 
may consume as much food, and of as 
costly a quality, as previously; or 
they may submit to a reduction, but 
not in proportion to the increase of 
numbers. On this supposition, not¬ 
withstanding the diminution of real 
wages, the increased population will 
require an increased quantity of food. 
But since industrial skill and know¬ 
ledge are supposed to be stationary, 
more food can only be obtained by 
resorting to worse land, or to methods 
of cultivation which are less productive 
in proportion to the outlay. Capital 
for this extension of agriculture will 
not be wanting; for though, by hypo¬ 
thesis, no addition takes place to 
the capital in existence, a sufficient 
amount can be spared from the in¬ 
dustry which previously supplied the 
other and less pressing wants which 
the labourers have been obliged to 
curtail. The additional supply of 
food, therefore, will be produced, but 
produced at a greater cost; and the 
exchange value of agricultural pro¬ 
duce must rise. It may be objected, 
that profits having risen, the extra cost 
of producing food can be defrayed from 
profits, without any increase of price. 
It could, undoubtedly, but it will not: 
because if it did, the agriculturist 
would be placed in an inferior position 
to other capitalists. The increase of 
profits, being the effect of diminished 
wages, is common to all employers of 
labour. The increased expenses arising 


ON RENTS, PROFITS, ETC. 431 

from the necessity of a more costly 
cultivation, affect the agriculturist 
alone. For this peculiar burthen 
he must be peculiarly compensated, 
whether the general rate of profit be 
high or low. He will not submit in¬ 
definitely to a deduction from his 
profits, to which other capitalists are 
not subject. He will not extend his 
cultivation by laying out fresh capital, 
unless for a return sufficient to yield 
him as high a profit as could be ob¬ 
tained by the same capital in other 
investments. The value, therefore, of 
his commodity will rise, and rise in 
proportion to the increased cost. The 
farmer will thus be indemnified for 
the burthen which is peculiar to him¬ 
self, and will also enjoy the augmented 
rate of pi'ofit which is common to all 
capitalists. 

It follows, from principles with 
which we are already familiar, that 
in these circumstances rent will rise. 
Any land can afford to pay, and under 
free competition will pay, a rent equal 
to thS excess of its produce above the 
return to an equal capital on the 
worst land, or under the least favour¬ 
able conditions. Whenever, therefore, 
agriculture is driven to descend to 
worse land, or more onerous processes, 
rent rises. Its rise will be twofold, 
for, in the first place, rent in kind, 01 
corn rent, will rise ; and in the second, 
since the value of agricultural pro¬ 
duce has also risen, rent, estimated in 
manufactured or foreign commodities 
(which is represented cceteris paribus 
by money rent) will rise still more. 

The steps of the process (if, after 
what has been formerly said, it is 
necessary to retrace them) are as fol¬ 
lows. Corn rises in price, to repay 
with the ordinary profit the capital 
required for producing additional corn 
on worse land or by more costly pro¬ 
cesses. So far as regards this addi¬ 
tional corn, the increased price is but 
an equivalent for the additional ex¬ 
pense; but the rise, extending to all 
corn, affords on all, except the last 
produced, an extra profit. If the 
farmer was accustomed to produce 
100 quarters of wheat at 40.s, and 
120 quarters are now required, of 



BOOK IV. CHAPTER III. § 2. 


432 

which the last twenty cannot be pro¬ 
duced under 45s., he obtains the extra 
five shillings on the entire 120 
quarters, and not on the last twenty 
alone. He has thus an extra 25 l. 
beyond the ordinary profits, and this, 
in a state of free competition, he will 
not be able to retain. He cannot how¬ 
ever be compelled to give it up to the 
consumer, since a less price than 45s. 
would be inconsistent with the produc¬ 
tion of the last twenty quarters. The 
price, then, will remain at 45s., and 
the 25 1. will be transferred by com¬ 
petition not to the consumer but 
to the landlord. A rise of rent is 
therefore inevitably consequent on an 
increased demand for agricultural pro¬ 
duce, when unaccompanied by in¬ 
creased facilities for its production. 
A truth which, after this final illus¬ 
tration, we may henceforth take for 
granted. 

The new element now introduced— 
an increased demand for food—besides 
occasioning an increase of rent, still 
further disturbs the distribution of the 
produce between capitalists and la¬ 
bourers. The increase of population 
will have diminished the reward of 
labour : and if its cost is diminished 
as greatly as its real remuneration, 
profits will be increased by the full 
amount. If, however, the increase of 
population leads to an increased pro¬ 
duction of food, which cannot be sup¬ 
plied but at an enhanced cost of pro¬ 
duction, the cost of labour will not be 
so much diminished as the real reward 
of it, and profits, therefore, will not be 
so much raised. It is even possible 
that they might not be raised at all. 
The labourers may previously have 
been so well provided for, that the 
whole of what they now lose may be 
struck off from their other indulgences, 
and they may not, either by necessity 
or choice, undergo any reduction in 
the quantity or quality of their food. 
To produce the food for the increased 
number may be attended with such 
an increase of expense, that wages, 
though reduced in quantity, may re¬ 
present as great a cost, may be the 
product of as much labour, as before, 
and the capitalist may not be at all 


benefited. On this supposition the 
loss to the labourer is partly absorbed 
in the additional labour required for 
producing the last instalment of agri¬ 
cultural produce; and the remainder 
is gained by the landlord, the only 
sharer who always benefits by an in¬ 
crease of population. 

§ 2. Let us now reverse our hypo¬ 
thesis, and, instead of supposing ca¬ 
pital stationary and population ad¬ 
vancing, let us suppose capital ad¬ 
vancing and population stationary; 
the facilities of production, both natu¬ 
ral and acquired, being, as before, un¬ 
altered. The real wages of labour, 
instead of falling, will now rise; and 
since the cost of production of the 
things consumed by the labourer is 
not diminished, this rise of wages im¬ 
plies an equivalent increase of the'eost 
of labour, and diminution of profits. 
To state the same deduction in other 
terms ; the labourers not being more 
numerous, and the productive power 
of their labour being only the same as 
before, there is no increase of the pro¬ 
duce ; the increase of wages, therefore, 
must be at the charge of the capital¬ 
ists. It is not impossible that the 
cost of labour might be increased in 
even a greater ratio than its real re¬ 
muneration. The improved condition 
of the labourers may increase the de¬ 
mand for food. The labourers may 
have been so ill oft' before, as not to 
have food enough ; and may now con¬ 
sume more: or they may choose to 
expend their increased means partly 
or wholly in a more costly quality of 
food, requiring more labour and more 
land ; wheat, for example, instead of 
oats or potatoes. This extension of 
agriculture implies, as usual, a greater 
cost of production and a higher price, 
so that besides the increase of the cost 
of labour arising from the increase of 
its reward, there will be a further in¬ 
crease (and an additional fall of profits) 
from the increased costliness of the 
commodities of which that reward 
consists. The same causes will pro¬ 
duce a rise of rent. What the capital¬ 
ists lose, above what the labourers 
gain, is partly transferred to the land- 




INFLUENCE OF PROGRESS 

lord, and partly swallowed up in the 
cost of growing food on worse land or 
by a less productive process. 

§ 3. Having disposed of the two 
simple cases, an increasing population 
and stationary capital, and an increas¬ 
ing capital and stationary population, 
we are prepared to take into consider¬ 
ation the mixed case, in which the 
two elements of expansion are com¬ 
bined, both population and capital in¬ 
creasing. If either element increases 
faster than the other, the case is so far 
assimilated with one or other of the 
two preceding: we shall suppose 
them, therefore, to increase with equal 
rapidity; the test of equality being, 
that each labourer obtains the same 
commodities as before, and the same 
quantity of those commodities. Let 
us examine what will be the effect, 
on rent and profits, of this double 
progress. 

Population having increased, with¬ 
out any falling off in the labourer’s 
condition, there is of course a demand 
for more food. The arts of production 
being supposed stationary, this food 
must be produced at an increased 
cost. To compensate for this greater 
cost of the additional food, the price 
of agricultural produce must rise. The 
rise extending over the whole amount 
of food produced, though the increased 
expenses only apply to a part, there is 
a greatly increased extra profit, which, 
by competition, is transferred to the 
landlord. Rent will rise, both in 
quantity of produce and in cost; 
while wages, being supposed to be the 
same in quantity, will be greater in 
cost. The labourer obtaining the 
same amount of necessaries, money 
wages have risen ; and as the rise is 
common to all branches of production, 
the capitalist cannot indemnify him¬ 
self by changing his employment, and 
the loss must be borne by profits. 

It appears, then, that the tendency 
of an increase of capital and popula¬ 
tion is to add to rent at the expense 
of profits: though rent does not gain 
all that profits lose, a part being ab¬ 
sorbed in increased expenses of pro¬ 
duction, that is, in hiring or feeding a 


ON RENTS, PROFITS, ETC. 433 

gi*eater number of labourers to obtain 
a given amount of agricultural pro¬ 
duce. By profits, must of course be 
understood the rate of profit; for a 
lower rate of profit on a larger capital 
may yield a larger gross profit, con¬ 
sidered absolutely, though a smaller 
in proportion to the entire produce. 

This tendency of profits to fall, is 
from time to time counteracted by 
improvements in production : whether 
arising from increase of knowledge, or 
from an increased use of the know¬ 
ledge already possessed. This is the 
third of the three elements, the effects 
of which on the distribution of the 
produce we undertook to investigate; 
and the investigation will be facili¬ 
tated by supposing, as in the case of 
the other two elements, that it ope¬ 
rates, in the first instance, alone. 

§ 4. Let us then suppose capital 
and population stationary, and a sud¬ 
den improvement made in the arts of 
production ; by the invention of more 
efficient machines, or less costly pro¬ 
cesses, or by obtaining access to 
cheaper commodities through foreign 
trade. 

The improvement may either be in 
some of the necessaries or indulgences 
which enter into the habitual consump¬ 
tion of the labouring class; or it may be 
applicable only to luxuries consumed 
exclusively by richer people. Very 
few, however, of the great industrial 
improvements are altogether of this 
last description. Agricultural im¬ 
provements, except such as specially 
relate to some of the rarer and more 
peculiar products, act directly upon 
the principal objects of the labourer’s 
expenditure. The steam-engine, and 
every other invention which affords a 
manageable power, are applicable to 
all things, and of course to those con¬ 
sumed by the labourer. Even the 
power-loom and the spinning-jenny, 
though applied to the most delicate 
fabrics, are available no less for the 
coarse cottons and woollens worn by 
the labouring class. All improvements 
in iocomotion cheapen the transport 
of necessaries as well as of luxuries, 
Seldom is a new branch of trade opened. 

F F 



434 BOOK IV. CHAPTER III. § 4. 


without, either directly or in some in¬ 
direct way, causing some of the articles 
which the mass of the people consume 
to he either produced or imported at 
smaller cost. It may safely be affirmed, 
therefore, that improvements in pro¬ 
duction generally tend to cheapen the 
commodities on which the wages of 
the labouring class are expended. 

In so far as the commodities affected 
by an improvement are those which 
the labourers generally do not consume, 
the improvement has no effect in alter¬ 
ing the distribution of the produce. 
Those particular commodities, indeed, 
are cheapened ; being produced at less 
cost, they fall in value and in price, 
and all who consume them, whether 
landlord*, capitalists, or skilled and 
privileged labourers, obtain increased 
means of enjoyment. The rate of 
profits, however, is not raised. There 
is a larger gross profit, reckoned in 
quantity of commodities. But the 
capital also, if estimated in those com¬ 
modities, has risen in value. The 
profit is the same percentage on the 
capital that it was before. The capi¬ 
talists are not benefited as capitalists, 
but as consumers. The landlords and 
the privileged classes of labourers, if 
they are consumers of the same com¬ 
modities, share the same benefit. 

The case is different with improve¬ 
ments which diminish the cost of pro¬ 
duction of the necessaries of life, or of 
commodities which enter habitually 
into the consumption of the great mass 
of labourers. The play of the different 
forces being here rather complex, it is 
necessary to analyze it with some 
minuteness. 

As formerly observed,* there are two 
kinds of agricultural improvements. 
Some consist in a .mere saving of 
labour, and enable a given quantity of 
food to be produced at less cost, but 
not on a smaller surface of land than 
before. Others enable a given extent 
of land to yield not only the same pro¬ 
duce with less labour, but a greater 
produce ; so that if no greater produce 
is required, a part of the land already 
under culture may be dispensed with. 
As the part rejected will be the least 
* Supra, p. 113. 


productive portion, the market will 
thenceforth be regulated by a better 
description of land than what was pre¬ 
viously the worst under cultivation. 

To place the effect of the improve¬ 
ment in a clear light, we must suppose 
it to take place suddenly, so as to leave 
no time during its introduction, for any 
increase of capital or of population. 
Its first effect will be a fall of the value 
and price of agricultural produce. 
This is a necessary consequence of 
either kind of improvement, but espe¬ 
cially of the last. 

An improvement of the first kind, 
not increasing the produce, does not 
dispense with any portion of the land; 
the margin of cultivation (as Dr. 
Chalmers terms it) remains where it 
was; agriculture does not recede, 
either in extent of cultivated land, or in 
elaborateness of methods: and the 
price continues to be regulated by the 
same land, and by the same capital, as 
before. But since that land or capital, 
and all other land or capital which 
produces food, now yields its produce 
at smaller cost, the price of food will 
fall proportionally. If one-tenth of the 
expense of production has been saved, 
the price of produce will fall one-tenth. 

But suppose the improvement to be 
of the second kind ; enabling the land 
to produce, not only the same corn 
with one-tenth less labour, but a tenth 
more corn with the same labour. Here 
the effect is still more decided. Culti¬ 
vation can now be contracted, and the 
market supplied from a smaller quan¬ 
tity of land. Even if this smaller 
surface of land were of the same ave¬ 
rage quality as the larger surface, the 
price would fall one-tenth, because the 
same produce would be obtained with 
a tenth less labour. But since the 
portion of land abandoned will be the 
least fertile portion, the price of pro¬ 
duce will thenceforth be regulated by 
a better quality of land than before. 
In additiou, therefore, to the original 
diminution of one-tenth in the cost of 
production, there will be a further 
diminution, corresponding with the re¬ 
cession of the “ margin” of agriculture 
to land of greater fertility. There will 
thus be a twofold fall of price. 





INFLUENCE OF PROGRESS 

Let us now examine the effect of the 
improvements, thus suddenly made, on 
the division of the produce; and in the 
first place, on rent. By the former of 
the two kinds of improvement, rent 
would be diminished. By the second, 
it would be diminished still more. 

Suppose that the demand for food 
requires the cultivation of three quali¬ 
ties of land, yielding, on an equal sur¬ 
face, and at an equal expense, 100, 80, 
and 60 bushels of wheat. The price of 
wheat will, on the average, be just 
sufficient to enable the third quality to 
be cultivated with the ordinary profit. 
The first quality therefore will yield 
forty and the second twenty bushels of 
extra profit, constituting the rent of 
the landlord. And first, let an im¬ 
provement be made, which, without 
enabling more corn to be grown, en¬ 
ables the same corn to be grown with 
one-fourth less labour. The price of 
wheat will fall one-fourth, and 80 
bushels will be sold for the price for 
which 60 were sold before. But the 
produce of the land which produces 60 
bushels is still required, and the ex¬ 
penses being as much reduced as the 
price, that land can still be cultivated 
with the ordinary profit. The first and 
second qualities will therefore continue 
to yield a su r p!us of 40 and 20 bushels, 
and corn rent will remain the same as 
before. But corn having fallen in price 
one-fourth, the same corn rent is equi¬ 
valent to a fourth less of money and of 
all other commodities. Sj far, there¬ 
fore, as the landlord expends his in¬ 
come in manufactured or foreign pro¬ 
ducts, he is one-fourth worse off than 
before. His income as landlord is re¬ 
duced to three-quarters of its amount: 
it is only as a consumer of corn that he 
is as well off. 

If the improvement is of the other 
kind, rent will fall in a still greater 
ratio. Suppose that the amount of 
•produce which the market requires, 
can be grown not only with a fourth 
less labour, but on a fourth less land. 
If all the land already in cultivation 
continued to be cultivated, it would 
yield a produce much larger than 
necessary. Land, equivalent to a fourth 
of the produce, must now be aban- 


ON RENTS, PROFITS, ETC. 435 

doned; and as the third quality yielded 
exactly one-fourth, (being 60 out of 
240,) that quality will go out of culti¬ 
vation. The 240 bushels can now be 
grown on land of the first and second 
qualities only; being, on the first, 100 
bushels plus one-third,or 133^ bushels; 
on the second, 80 bushels plus one- 
third, or 106f bushels ; together, 240. 
The second quality of land, instead of 
the third, is now the lowest, and regu¬ 
lates the price. Instead of 60, it is 
sufficient if 106§ bushels repay the 
capital with the ordinary profit. The 
price of wheat will consequently fall, 
not in the ratio of 60 to 80, as in the 
other case, but in the ratio of 60 to 
106§. Even this gives an insufficient 
idea of the degree in which rent will be 
affected The whole produce of the 
second quality of land will now be re¬ 
quired to repay the expenses of produc¬ 
tion. That land, being the worst in 
cultivation, will pay no rent. And the 
first quality will only yield the diffe¬ 
rence between 133^ bushels and 106§, 
being 26§ bushels instead of 40. The 
landlords collectively will have lost 33^ 
out of 60 bushels in corn rent alone, 
while the value and price of what is 
left will have been diminished in the 
ratio of 60 to 106$. 

It thus appears, that the interest of 
the landlord is decidedly hostile to the 
sudden and general introduction of 
agricultural improvements. This as¬ 
sertion has been called a paradox, and 
made a ground for accusing its first 
promulgator, Ricardo, of great intellec¬ 
tual perverseness, to say nothing worse. 
I cannot discern in what the paradox 
consists; and the obliquity of vision 
seems to me to be on the side of his 
assailants. The opinion is only made 
to appear absurd by stating it unfairly. 
If the assert ion were that a landlord 
is injured by the improvement of his 
estate, it would certainly be indefen¬ 
sible ; but what is asserted is, that he 
is injured by the improvement of the 
estates of other people, although his 
own is included. Nobody doubts that 
he would gain greatly by the improve¬ 
ment if he could keep it to himself, and 
unite the two benefits, of an increased 
produce from his land, and a price as 

F F 2 



436 BOOK IV. CHAPTER III. § 4. 


higli as before. But if the increase of 
produce took place simultaneously on all 
lands, the price would not be as high 
as before; and there is nothing un¬ 
reasonable in supposing that the land¬ 
lords would be, not benefited, but in¬ 
jured. It is admitted that whatever 
permanently reduces the price of pro¬ 
duce diminishes rent: and it is quite 
in accordance with common notions to 
suppose that if, by the increased pro¬ 
ductiveness of land, less land were re¬ 
quired for cultivation, its value, like 
that of other articles for which the 
demand had diminished, would fall. 

I am quite willing to admit that 
rents have not really been lowered by 
the progress of agricultural improve¬ 
ment ; but why ? Because improve¬ 
ment has never in reality been sudden, 
but always slow ; at no time much 
outstripping, and often falling far short 
of, the growth of capital and popula¬ 
tion. which tends as much to raise rent, 
as the other to lower it, and which is 
enabled, as we shall presently see, to 
raise it much higher by means of the 
additional margin afforded by improve¬ 
ments in agriculture. First, however, 
we must examine in what manner the 
sudden cheapening of agricultural pro¬ 
duce would affect profits and wages. 

In the beginning, money wages 
would probably remain the same as 
before, and the labourers would have 
the full benefit of the cheapness. They 
would be enabled to increase their 
consumption either of food or of other 
articles, and would receive the same 
cost, and a greater quantity. So 
far, profits would be unaffected. But 
the permanent remuneration of the 
labourers essentially depends on what 
we have called their habitual stan¬ 
dard ; the extent of the require¬ 
ments which, as a class, they in¬ 
sist on satisfying before they choose 
to have children. If their tastes and 
requirements receive a durable impress 
from the sudden improvement in their 
condition, the benefit to the class will 
be permanent. But the same cause 
which enables them to purchase greater 
comforts and indulgences with the same 
wages, would enable them to purchase 
the same amount of comforts and in¬ 


dulgences with lower wages; and a 
greater population may now exist, 
without reducing the labourers below 
the condition to which they are accus¬ 
tomed. Hitherto, this and no other 
has been the use which the labourers 
have commonly made of any increase 
of their means of living; they have 
treated it simply as convertible into 
food for a greater number of children. 
It is probable, therefore, that popula¬ 
tion would be stimulated, and that 
after the lapse of a generation the real 
wages of labour would be no higher 
than before the improvement: the re¬ 
duction being partly brought about by 
a fall of money wages, and partly 
through the price of food, the cost of 
which, from the demand occasioned 
by the increase of population, would 
be increased. To the extent to 
which money wages fell, profits would 
rise ; the capitalist obtaining a greater 
quantity of equally efficient labour by 
the same outlay of capital. We thus 
see that a diminution of the cost of 
living, whether arising from agricultu¬ 
ral improvements or from the importa¬ 
tion of foreign produce, if the habits 
and requirements of the labourers are 
not raised, usually lowers money wages 
and rent, and raises the general rate of 
profit. 

What is true of improvements which 
cheapen the production of food, is true 
also of the substitution of a cheaper for 
a more costly variety of it. The same 
land yields to the 6ame labour a much 
greater quantity of human nutriment 
in the form of maize or potatoes, than 
in the form of wheat. If the labourers 
were to give up bread, and feed only 
on those cheaper products, taking as 
their compensation not a greater quan¬ 
tity of other consumable commodities, 
but earlier marriages and larger fami¬ 
lies, the cost of labour would be much 
diminished, and‘if labour continued 
equally efficient, profits would rise; 
while rent would be much lowered, 
since food for the whole population 
could be raised on half or a third part 
of the land now sown with corn. At 
the same time, it being evident that 
land too barren to be cultivated for 
wheat might be made in case of ueces- 




INFLUENCE OF PROGRESS 

sity to yield potatoes sufficient to sup¬ 
port the little labour necessary for 
producing them, cultivation might ulti¬ 
mately descend lower, and rent even¬ 
tually rise higher, on a potato or maize 
system, than on a corn system ; be¬ 
cause the land would be capable of 
feeding a much larger population before 
reaching the limit of its powers. 

If the improvement, which we sup¬ 
pose to take place, is not in the pro¬ 
duction of food, but of some manufac¬ 
tured article consumed by the iabouring 
class, the effect on wages and profits 
will at first be the same; but the 
effect on rent very different. It will 
not be lowered ; it will even, if the ul¬ 
timate effect of the improvement is an 
increase of population, be raised : in 
which last case profits will be lowered. 
The reasons are too evident to require 

statement. 

• 

§ 5. We have considered, on the 
one hand, the manner in which the 
distribution of the produce into rent, 
profits, and wages, is affected by the 
ordinary increase of population and 
capital, and on the other, how it is 
affected by improvements in produc¬ 
tion, and more especially in agricul¬ 
ture. We have found that the former 
cause lowers profits, and raises rent 
and the cost of labour : while the ten¬ 
dency of agricultural improvements is 
to diminish rent; and all improve¬ 
ments which cheapen any article of 
the labourer’s consumption, tend to 
diminish the cost of labour, and to 
raise profits. The tendency of each 
cause in its separate state being thus 
ascertained, it is easy to determine the 
tendency of the actual course of things, 
in which the two movements are going 
on simultaneously, capital and popu¬ 
lation increasing with tolerable stea¬ 
diness, while improvements in agri¬ 
culture are made from time to time, 
and the knowledge and practice of 
improved methods become diffused 
gradually through the community. 

The habits and requirements of the 
labouring classes being given (which 
determine their real wages,) rent, 
pro tits, and money wages at any given 
time, are the result of the composition 


ON RENTS, PROFITS, ETC. 437 

of these rival forces. If during any 
period agricultural improvement ad¬ 
vances faster than population, rent and 
money wages during that period will 
tend downward, and profits upward. 
If population advances more rapidly 
than agricultural improvement, either 
the labourers will submit to a reduc¬ 
tion in the quantity or quality of their 
food, or if not, rent and money wages 
will progressively rise, and profits will 
fall. 

Agricultural skill and knowledge are 
of slow growth, and still slower diffu¬ 
sion. Inventions and discoveries, too, 
occur only occasionally, while the in¬ 
crease of population and capital are 
continuous agencies. It therefore 
seldom happens that improvement, 
even during a short time, has so much 
the start of population and capital as 
actually to lower rent, or raise the 
rate of profits. There are many 
countries in which the growth of 
population and capital are not rapid, 
but in these agricultural improvement 
is less active still. Population almost 
everywhere treads close on the heels of 
agricultural improvement, and effaces 
its effects as fast as they are produced. 

The reason why agricultural im¬ 
provement seldom lowers rent, is that 
it seldom cheapens food, but only pre¬ 
vents it from growing dearer; and 
seldom, if ever', throws land out of 
cultivation, but only enables worse and 
worse land to be taken in for the sup¬ 
ply of an increasing demand. AY hat 
is sometimes called the natural state 
of a country which is but half cul¬ 
tivated, namely, that the land is 
highly productive, and food obtained 
in great abundance by little labour, is 
only true of unoccupied countries colo¬ 
nized by a civilized people. In the 
United States the worst land in cul¬ 
tivation is of a high quality (except 
sometimes in the immediate vicinity 
of markets or means of conveyance, 
where a bad quality is compensated 
by a good situation); and even if no 
further improvements were made in 
agriculture or locomotion, cultivation 
would have many steps yet to descend, 
before the increase of population and 
capital would be brought to a stand; 




438 BOOK IV. CHAPTER in. § 5. 


but in Europe five hundred years ago, 
though so thinly peopled in compa¬ 
rison to the present population, it is 
probable that the worst land under the 
plough was, from the rude state of 
agriculture, quite as unproductive as 
the worst land now cultivated ; and 
that cultivation had approached as 
near to the ultimate limit of profitable 
tillage, in those times as in the pre¬ 
sent. What the agricultural improve¬ 
ments since made have reallv done is, 
by increasing the capacity of produc¬ 
tion of land in general, to enable til¬ 
lage to extend downwards to a much 
worse natural quality of land than the 
worst which at that time would have 
admitted of cultivation by a capitalist 
for profit; thus rendering a much 
greater increase of capital and popu¬ 
lation possible, and removing always 
a little and a little further off, the 
barrier which restrains them ; popu¬ 
lation meanwhile always pressing so 
hard against the barrier, that there is 
never any visible margin left for it to 
seize, every inch of ground made 
vacant for it by improvement being at 
once filled up by its advancing columns. 
Agricultural improvement may thus 
be considered to be not so much a 
counterforce conflicting with increase 
of population, as a partial relaxation 
of the bonds which confine that in¬ 
crease. 

The effects produced on the division 
of the produce by an increase of pro¬ 
duction, under the joint influence of 
increase of population and capital and 
improvements of agriculture, are very 
different from those deduced from the 
hypothetical cases previously discussed. 
In particular, the effect on rent is 
most materially different. We re¬ 
marked that—while a great agricul¬ 
tural improvement, made suddenly and 
universally, would in the first instance 
inevitably lower rent—such improve¬ 
ments enable rent, in the progress of 
society, to rise gradually to a much 
higher limit than it could otherwise 
attain, since they enable, a much 
lower quality of land to be ultimately 
cultivated. But in the case we are 
now supposing, which nearly cor¬ 
responds to the usual course of things, 


this ultimate effect becomes the imme¬ 
diate effect. Suppose cultivation to 
have reached, or almost reached, the 
utmost limit permitted by the state of 
the industrial arts, and rent, there¬ 
fore, to have attained nearly the high¬ 
est point to which it can be carried by 
the progress of population and Capital, 
with the existing amount of skill and 
knowledge. If a great agricultural 
improvement were suddenly intro¬ 
duced, it might throw back rent for 
a considerable space, leaving it to 
regain its lost ground by the progress 
of population and capital, and after¬ 
wards to go on further. But, taking 
place, as such improvement always 
does, very gradually, it causes no re¬ 
trograde movement of either rent or 
cultivation ; it merely enables the one 
to go on rising, and the other extend¬ 
ing, long after they must otherwise 
have stopped. It would do this even 
without the necessity of resorting to 
a worse quality of land; simply by 
enabling the lands already in cultiva¬ 
tion to yield a greater produce, with 
no increase of the proportional cost. 
If by improvements of agriculture all 
the lands in cultivation could be made, 
even with double labour and capital, 
to yield a double produce, (supposing 
that in the meantime population in¬ 
creased so as to require this double 
quantity) all rents would be doubled. 

To illustrate the point, let us revert 
to the numerical example in a former 
page. Three qualities of land yield 
respectively 100, 80, and 60 bushels 
to the same outlay on the same extent 
of surface. If No. 1 could be made to 
yield 200, No. 2, 160, and No. 3, 120 
bushels, at only double the expense, 
and therefore without any increase of 
the cost of production, and if the popu¬ 
lation, having doubled, required all 
this increased quantity, the rent of 
No. 1 would be 80 bushels instead of 
40, and of No. 2, 40 instead of 20, 
while the price and value per bushel 
would be the same as before: so 
that corn rent and money rent would 
both be doubled. I need not point 
out the difference between this result, 
and what we have shown would take 
place if there were an improvement 





TENDENCY OF PROFITS TO A MINIMUM. 


in production without the accompa¬ 
niment of an increased demand for 
food. 

Agricultural improvement, then, is 
always ultimately, and in the manner 
in winch it generally takes place also 
immediately, beneficial to the landlord. 
We may add, that when it takes place 
in that manner, it is beneficial to no 
one else. When the demand for pro¬ 
duce fully keeps pace with the in¬ 
creased capacity of production, food is 
not cheapened; the labourers are not, 
even temporarily, benefited; the cost 
of labour is not diminished, nor profits 
raised. There is a greater aggregate 
production, a greater produce divided 
among the labourers, and a larger gross 
profit; but the wages being shared 
among a larger population, and the 
profit spread over a larger capital, no 
labourer is better off' nor does any 
capitalist derive from the same amount 
of capital a larger income. 


439 

The result of this long investigation 
may be summed up as follows. The 
economical progress of a society con¬ 
stituted of landlords, capitalists, and 
labourers, tends to the progressive en¬ 
richment of the landlord class; while 
the cost of the labourer’s subsistence 
tends on the whole to increase, and 
profits to fall. Agricultural improve¬ 
ments are a counteracting force to the 
two last effects ; but the first, though 
a case is conceivable in which it would 
be temporarily checked, is ultimately 
in a high degree promoted by those 
improvements; and the increase of 
population tends to transfer all the 
benefits derived from agricultural im¬ 
provement to the landlords alone. 
What other consequences, in addition 
to these, or in modification of them, 
arise from the industrial progress of a 
society thus constituted, I shall en¬ 
deavour to show in the succeeding 
chapter. 


CHAPTER IV. 

OF THE TENDENCY OF PROFITS TO A MINIMUM. 


§ 1. The tendency of profits to fall 
as society advances, which has been 
brought to notice in the preceding 
chapter, was early recognised by 
writers on industry and commerce ; 
but the laws which govern profits not 
being then understood, the phenome¬ 
non was ascribed to a wrong cause. 
Adam Smith considered profits to be 
determined by what he called the 
competition of capital; and concluded 
that when capital increased, this com¬ 
petition must likewise increase, and 
profits must fall. It is not quite cer¬ 
tain what sort of competition Adam 
Smith had here in view. His words 
in the chapter on Profits of Stock* 
are, “ When the stocks of many rich 
merchants are turned into the same 
trade, their mutual competition natu¬ 
rally tends to lower its'profits; and 
* Wealth of Nations, book i. ch. 9. 


when there is a like increase of stock 
in all the different trades carried on in 
the same society, the same competition 
must produce the same effect in them 
all.” This passage would lead us to 
infer that, in Adam Smith’s opinion, 
the manner in which the competition 
of capital lowers profits is by lowering 
prices; that being usually the mode 
in which an increased investment of 
capital in any particular trade, lowers 
the profits of that trade. But if this 
was his meaning, he overlooked the 
circumstance, that the fall of price, 
which if confined to one commodity 
really does lower the profits of the 
producer, ceases to have that effect as 
soon as it extends to all commodities ; 
because, when all things have fallen, 
nothing has really fallen, except nomi¬ 
nally ; and even computed in money, 
the expenses of every producer have 





BOOK IY. CHAPTER IV. § 2. 


440 

diminished as much as his returns. 
Unless indeed labour he the one com¬ 
modity which has not fallen in money 
pripe, when all other things have : if 
so, what has really taken place is a 
rise of wages ; and it is that, and not 
the fall of prices, which has lowered 
the profits of capital. There is another 
thing which escaped the notice of 
Adam Smith; that the supposed uni¬ 
versal fall of prices, through increased 
competition of capitals, is a thing 
which cannot take place. Prices are 
not determined by the competition of 
the sellers only, but also by that of 
the buyers ; by demand as well as 
supply. The demand which affects 
money prices consists of all the money 
in the hands of the community des¬ 
tined to be laid out in commodities ; 
and as long as the proportion of this 
to the commodities is not diminished, 
there is no fall of general prices. 
Now, howsoever capital may increase, 
and give rise to an increased produc¬ 
tion of commodities, a full share of the 
capital will be drawn to the business 
of producing or importing money, and 
the quantity of money will be aug¬ 
mented in an equal ratio with the 
quantity of commodities. For if this 
were not the case, and if money, there¬ 
fore, were, as the theory supposes, 
perpetually acquiring increased pur¬ 
chasing power, those who produced or 
imported it would obtain constantly 
increasing profits; and this could not 
happen without attracting labour and 
capital to that occupation from other 
employments. If a general fall of 
prices, and increased value of money, 
were really to occur, it could only be 
as a consequence of increased cost of 
production, from the gradual exhaus¬ 
tion of the mines. 

It is not tenable, therefore, in theory, 
that the increase of capital produces, 
or tends to produce, a general decline 
of money prices. Neither is it true, 
that any general decline of prices, 
as capital increased, has manifested 
itself in fact. The only things ob¬ 
served to fall in price with the progress 
of society, are those in which there 
have been improvements in production, 
greater than have taken place in the 


production of the precious metals; as 
for example, all spun and woven 
fabrics. Other things again, instead 
of falling, have risen in price, be¬ 
cause their cost of production, com¬ 
pared with that of gold and silver, has 
increased. Among these are all kinds 
of food, comparison being made with a 
much earlier period of history. r l he 
doctrine, therefore, that competition of 
capital lowers profits by lowering 
prices, is incorrect in fact, as well as 
unsound in principle. 

But it is not certain that Adam 
Smith really held that doctrine; for his 
language on the subject is wavering 
and unsteady, denoting the absence of 
a definite and well-digested opinion. 
Occasionally he seems to think that 
the mode in which the competition of 
capital lowers profits, is by raising 
wages. And when speaking of the 
rate of profit in new colonies, he seems 
on the very verge of grasping the com¬ 
plete theory of the subject. “ As the 
colony increases, the profits of stock 
gradually diminish. When the most 
fertile and best situated lands have 
been all occupied, less profit can be 
made by the cultivation of what is in¬ 
ferior both in soil and situation.” Had 
Adam Smith meditated longer on 
the subject, and systematized his 
view of it by harmonizing with each 
other the various glimpses which he 
caught of it from different points, he 
would have perceived that this last 
is the true cause of the fall of profits 
usually consequent upon increase of 
capital. 

§ 2. Mr. Wakefield, in his Com¬ 
mentary on Adam Smith, and his im¬ 
portant writings on Colonization, takes 
a much clearer view of the subject, 
and arrives, through a substantially 
correct series of deductions, at practi¬ 
cal conclusions ■which appear to me 
just and important; but he is not 
equally happy in incorporating his 
valuable speculations with the results 
of previous thought, and reconciling 
them with other truths. Some of the 
theories of Dr. Chalmers, in his chapter 
“ On the Increase and Limits of Capi¬ 
tal,” and the two chapters which follow 



TENDENCY OF PROFITS TO A MINIMUM. 441 


it, coincide in their tendency and 
spirit with those of Mr. Wakefield; 
hut Dr. Chalmers’ ideas, though de¬ 
livered, as is his custom, with a most 
attractive semblance of clearness, are 
really on this subject much more con¬ 
fused than even those of Adam Smith, 
and more decidedly infected with the 
often refuted notion that the compe¬ 
tition of capital lowers general prices ; 
the subject of Money apparently not 
having been included among the parts 
of Political Economy which this acute 
and vigorous writer had carefully 
studied. 

Mr. Wakefield’s explanation of the 
fall of profits is briefly this. Production 
is limited not solely by the quantity of 
capital and of labour, but also by the 
extent of the “ field of employment.” 
The field of employment for capital is 
twofold ; the land of the country, and 
the capacity of foreign markets to take 
its manufactured commodities. On a 
limited extent of land, only a limited 
quantity of capital can find employment 
at a profit. As the quantity of capital 
approaches this limit, profit falls; when 
the limit is attained, profit is annihi¬ 
lated ; and can only be restored through 
an extension of the field of employment, 
either by the acquisition of fertile land, 
or by opening new markets in foreign 
countries, from which food and ma¬ 
terials can be purchased with the 
products of domestic capital. These 
propositions are in my opinion sub¬ 
stantially true ; and, even to the phra¬ 
seology in which they are expressed, 
considered as adapted to popular and 
u’actical rather than scientific uses, I 
lave nothing to object. The error which 
seems to me imputable to Mr. Wake¬ 
field is that of supposing his doctrines 
to be in contradiction to the principles 
of the best school of preceding political 
economists, instead of being, as they 
really are, corollaries from those prin¬ 
ciples ; though corollaries which, per¬ 
haps, would not always have been 
admitted by those political economists 
themselves. 

The most scientific treatment of the 
subject which I have met with, is in an 
essay on the effects of Machinery, pub¬ 
lished in the Westminster lieview for 


January 1826, by Mr. William Ellis ;* 
which was doubtless unknown to Mr. 
Wakefield, but which had preceded 
him, though by a different path, in 
several of his leading conclusions. This 
essay excited little notice, partly from 
being published anonymously in a pe¬ 
riodical, and partly because it was 
much in advance of the state of political 
economy at the time. In Mr. Ellis’s 
view of the subject, the questions and 
difficulties raised by Mr. Wakefield’s 
speculations and by those of Dr. 
Chalmers, find a solution consistent 
with the principles of political economy 
laid down in the present treatise. 

§ 3. There is at every time and place 
some particular rate of profit, which is 
the lowest that will induce the people 
of that country and time to accumulate 
savings, and to employ those savings 
productively. This minimum rate of 
profit varies according to circum¬ 
stances. It depends on two elements. 
One is, the strength of the effective 
desire of accumulation; the compara¬ 
tive estimate made by the people of 
that place and era, of future interests 
when weighed against present. This 
element chiefly affects the inclination to 
save. The other element, which affects 
not so much the willingness to save as 
the disposition to employ savings pro¬ 
ductively, is the degree of security of 
capital engaged in industrial opera¬ 
tions. A state of general insecurity, 
no doubt affects also the disposition to 
save. A hoard may be a source of ad¬ 
ditional danger to its reputed possessor. 
But as it may also be a powerful means 
of averting dangers, the effects in this 
respect may perhaps be looked upon as 
balanced. But in employing any funds 
which a person may possess as capital 
on his own account, or in lending it 
to others to be so employed, there is 
always some additional risk, over and 
above that incurred by keeping it idle 
in his own custody. This extra risk is 
great in proportion as the general state 

* Now so much better known through his 
apostolic exertions, by pen, purse, and per¬ 
son, for the improvement of popular educa¬ 
tion, and especially for the introduction into 
it of the elements of practical Political 
Economy, 




442 BOOK IV. CHAPTER IV. § 3. 


of society is insecure : it may be equi¬ 
valent to twenty, thirty, or fifty per 
cent, or to no more than one or two ; 
something, however, it must always 
be: and for this, the expectation of 
profit must be sufficient to compensate. 

There would he adequate motives 
for a certain amount of saving, even 
if capital yielded no profit. There 
would be an inducement to lay by 
in good times a provision for bad; 
to reserve something for sickness and 
infirmity, or as a means of leisure 
and independence in the latter part of 
life, or a help to children in the outset 
of it. Savings, however, which have 
only these ends in view, have not much 
tendency to increase the amount of ca¬ 
pital permanently in existence. These 
motives only prompt persons to save at 
one period of life what they purpose to 
consume at another, or what will be 
consumed by their children before they 
can completely provide for themselves. 
The savings by which an addition is 
made to the national capital, usually 
emanate from the desire of persons to 
improve what is termed their condilion 
in life, or to make a provision for chil¬ 
dren or others, independent of their 
exertions. Now, to the strength of these 
inclinations it makes a very material 
difference how much of the desired ob¬ 
ject can be effected by a given amount 
and duration of self-denial; which again 
depends on the rate of profit. And there 
is in every country some rate of profit, 
below which persons in general will not 
find sufficient motive to save for the mere 
purpose of growing richer, or of leaving 
others better off than themselves. Any 
accumulation, therefore, by which the 
general capital is increased, requires as 
its necessary condition a certain rate 
of profit: a rate which an average per¬ 
son will deem to be an equivalent for 
abstinence, with the addition of a suffi¬ 
cient insurance against risk. There 
are always some persons in whom the 
effective desire of accumulation is above 
the average, and to whom less than this 
rate of profit is a sufficient inducement 
to save; but these merely step into the 
place of others whose taste for expense 
and indulgence is beyond the average, 
and who, instead of saving, perhaps 


even dissipate w 7 hat they have re¬ 
ceived. 

I have already observed that this 
minimum rate of profit, less than which 
is not consistent wfith the further in¬ 
crease of capita!, is lower in some states 
of society than in others; and I may 
add, that the kind of social progress 
characteristic of our present civiliza¬ 
tion, tends to diminish it. In the first 
place, one of the acknowledged effects 
of that progress is an increase of gene¬ 
ral security. Destruction by wars, and 
spoliation by private or public violence, 
are less and less to be apprehended; 
and the improvements which may be 
looked for in education and in the ad¬ 
ministration of justice, or, in their 
default, increased regard for opinion, 
afford a growing protection against 
fraud and reckless mismanagement. 
The risks attending the investment of 
savings in productive employment, re¬ 
quire therefore a smaller rate of profit 
to compensate for them than was re¬ 
quired a century ago, and will here¬ 
after require less than at present. In 
the second place, it is also one of the 
consequences of civilization that man¬ 
kind become less the slaves of the 
moment, and more habituated to carry 
their desires and purposes forward into 
a distant future. This increase of pro¬ 
vidence is a natural result of the in¬ 
creased assurance with which futurity 
can be looked forward to; and is, be¬ 
sides, favoured by most of the influ¬ 
ences which an industrial life exercises 
over the passions and inclinations of 
human nature. In proportion as life 
has fewer vicissitudes, as habits become 
more fixed, and great prizes are less 
and less to be hoped for by any other 
means than long perseverance, man¬ 
kind become more willing to sacrifice 
present indulgence for future objects. 
This increased capacity of forethought 
and self-control may assuredly find 
other things to exercise itself upon 
than increase of riches, and some con¬ 
siderations connected with this topic 
will shortly be touched upon. The 
present kind of social progress, how¬ 
ever, decidedly tends, though not per¬ 
haps to increase the desire of accumu¬ 
lation, yet to weaken the obstacles to 




TENDENCY OF PROFITS TO A MINIMUM. 443 


it, and to diminish the amount of profit 
which people absolutely require as an 
inducement to save and accumulate. 
For these two reasons, diminution of 
risk and increase of providence, a profit 
or interest of three or four per cent is 
as sufficient a motive to the increase of 
capital in England at the present day, 
as thirty or forty per cent in the Bur¬ 
mese Empire, or in England at the 
time of King John. In Holland during 
the last century a return of two per 
cent, on government security, was con¬ 
sistent with an undiminished, if not 
with an increasing capital. But though 
the minimum rate of profit is thus liable 
to vary, and though to specify exactly 
what it is would at any given time be 
impossible, such a minimum always 
exists; and whether it be high or low, 
when once it is reached, no further in¬ 
crease of capital can for the present 
take place. The country has then 
attained what is known to political 
economists under the name of the sta¬ 
tionary state. 

§ 4. We now arrive at the funda¬ 
mental proposition which this chapter 
is intended to inculcate. When a coun¬ 
try has long possessed a large produc¬ 
tion, and a large net income to make 
savings from, and when, therefore, the 
means have long existed of making a 
great annual addition to capital; (the 
country not having, like America, a 
large reserve of fertile land still un¬ 
used ;) it is one of the characteristics 
of such a country, that the rate of 
profit is habitually within, as it were, 
a hand’s breadth of the minimum, and 
the country therefore on the very verge 
of the stationary state. By this I do 
not mean that this state is likely, in 
any of the great countries of Europe, 
to be soon actually reached, or that 
capital does not still yield a profit con¬ 
siderably greater than what is barely 
sufficient to induce the people of those 
countries to save and accumulate. My 
meaning is, that it would require but 
a short time to reduce profits to the 
minimum, if capital continued to in¬ 
crease at its present rate, and no cir¬ 
cumstances having a tendency to raise 
the rate of profit occurred in the mean¬ 


time. The expansion of capital would 
soon reach its ultimate boundary, if the 
boundary itself did not continually open 
and leave more space. 

In England, the ordinary rate of 
interest on government securities, in 
which the risk is next to nothing, may 
be estimated at a little more than three 
per cent: in all other investments, 
therefore, the interest or profit calcu¬ 
lated upon (exclusively of what is pro¬ 
perly a remuneration for talent or ex¬ 
ertion) must be as much more than 
this amount, as is equivalent to the 
degree of risk to which the capital is 
thought to be exposed. Let us suppose 
that in England even so small a net 
profit as one per cent, exclusive of in¬ 
surance against risk, would constitute 
a sufficient inducement to save, but 
that less than this would not be a suffi¬ 
cient inducement. I now say, that the 
mere continuance of the present annual 
increase of capital, if no circumstance 
occurred to counteract its effect, would 
suffice in a small number of years to 
reduce the rate of net profit to one per 
cent. 

To fulfil the conditions of the hypo¬ 
thesis, we must suppose an entire ces¬ 
sation of the exportation of capital for 
foreign investment. No more capital 
sent abroad for railways, or loans; no 
more emigrants taking capital with 
them, to the colonies, or to other coun¬ 
tries ; no fresh advances made, or 
credits given, by bankers or merchants 
to their foreign correspondents. We 
must also assume that there are no 
fresh loans for unproductive expendi¬ 
ture by the government, or on mort¬ 
gage, or otherwise; and none of the 
waste of capital which now takes place 
by the failure of undertakings, which 
people are tempted to engage in by 
the hope of a better income than, can 
be obtained in safe paths at the present 
habitually low rate of profit. We must 
suppose the entire savings of the com¬ 
munity to be annually invested in 
really productive employment within 
the country itself; and no new channels 
opened by industrial inventions, or by 
a more extensive substitution of the 
best known processes for inferior ones. 

Few persons would hesitate to say, 





444 BOOK IV. CHAPTER IV. § 5. 


that there would he great difficulty in 
finding remunerative employment every 
year for so much new capital, and most 
would conclude that there would be 
what used to be termed a general glut; 
that commodities would be produced,and 
remain unsold, or be sold only at a loss. 
But the full examination which we have 
already given to this question,* has 
shown that this is not the mode in 
which the inconvenience would be ex¬ 
perienced. The difficulty would not 
consist in any want of a market. If 
the new capital were duly shared 
among many varieties of employment, 
it would raise up a demand for its own 
produce, and there would be no cause 
why any part of that produce should 
remain longer on hand than formerly. 
What would really be, not merely diffi¬ 
cult, but impossible, would be to em¬ 
ploy this capital without submitting to 
a rapid reduction of the rate of profit. 

As capital increased, population 
either would also increase, or it would 
not. If it did not, wages would rise, 
and a greater capital would be distri¬ 
buted in wages among the same num¬ 
ber of labourers. There being no more 
labour than before, and no improve¬ 
ments to render the labour more effi¬ 
cient, there would not be any increase 
of the produce ; and as the capital, 
however largely increased, would only 
obtain the same gross return, the whole 
savings of each year would be exactly i 
so much subtracted from the profits of 
the next and of every following year. 
It is hardly necessary to say that in 
such circumstances profits would very 
soon fall to the point at which further 
increase of capital would cease. An 
augmentation of capital, much more 
rapid than that of population, must 
soon reach its extreme limit, unless 
accompanied by increased efficiency of 
labour (through inventions and disco¬ 
veries, or improved mental and physical 
education), or unless some of the idle 
people, or of the unproductive labourers, 
became productive. 

If population did increase with the 
increase of capital, and in proportion to 
it, the fall of profits would still be in¬ 
evitable. Increased population implies 
* Book iii. cb, 14. 


increased demand for agricultural pro¬ 
duce. In the absence of industrial im¬ 
provements, this demand can only be 
supplied at an increased cost of produc¬ 
tion, either by cultivating worse land, 
or by a more elaborate and costly cul¬ 
tivation of the land already under til¬ 
lage. The cost of the labourer’s sub¬ 
sistence is therefore increased; and 
uidess the labourer submits to a deteri¬ 
oration of his condition, profits must fall. 
In an old country like England, if, in 
addition to supposing all improvement 
in domestic agriculture suspended, we 
suppose that there is no increased pro¬ 
duction in foreign countries for the 
English market, the fall of profits would 
be very rapid. If both these avenues 
to an increased supply of food were 
closed, and population continued to in¬ 
crease, as it is said to do, at the rate of 
a thousand a day, all waste land which 
admits of cultivation in the existing 
state of knowledge would soon be culti¬ 
vated, and the cost of production and 
price of food would be so increased, 
that if the labourers received the in¬ 
creased money wages necessary to com¬ 
pensate for their increased expenses, 
profits w r ould very soon reach the mini¬ 
mum. The fall of profits would be re¬ 
tarded if money w r ages did not rise, or 
rose in a less degree ; but the margin 
which can be gained by a deterioration 
of the labourers’ condition is a very nar¬ 
row one : in general they cannot bear 
much reduction ; when they can, they 
have also a higher standard of neces¬ 
sary requirements, and will not. On 
the whole, therefore, we may assume 
that in such a country as England, if 
the present annual amount of savings 
were to continue, without any of the 
counteracting circumstances which now 
keep in check the natural influence of 
those savings in reducing profit, the 
rate of profit would speedily attain the 
minimum, and all further accumula¬ 
tion of capital would for the present 
cease. 

§ 5. What, then, are these counter¬ 
acting circumstances, which, in the 
existing state of things, maintain a 
tolerably equal struggle against the 
downward tendency of profits, and pro- 




TENDENCY OF PROF 

vent the great annual savings which 
take place in this country, from de¬ 
pressing the rate of profit much nearer 
to that lowest point to which it is always 
tending, and which, left to itself, it 
would so promptly attain ? The re¬ 
sisting agencies are of several kinds. 

First among them, we may notice 
one which is so simple and so conspi¬ 
cuous, that some political economists, 
especially M. de Sismondi and Dr. 
Chalmers, have attended to it almost 
to the exclusion of all others. This is, 
the waste of capital in periods of over¬ 
trading and rash speculation, and in 
the commercial revulsions by which 
such times are always followed. It is 
true that a great part of what is lost 
at such periods is not destroyed, but 
merely transferred, like a gambler’s 
losses, to more successful speculators. 
But even of these mere transfers, a 
large portion is always to foreigners, 
by the hasty purchase of unusual 
quantities of foreign goods at advanced 
prices. And much also is absolutely 
wasted. Mines are opened, railways 
or bridges made, and many other works 
of uncertain profit commenced, and in 
these enterprises much capital is sunk 
which yields either no return, or none 
adequate to the outlay. Factories are 
built and machinery erected beyond 
what the market requires, or can keep 
in employment. Even if they are kept 
in employment, the capital is no less 
sunk ; it has been converted from cir¬ 
culating into fixed capital, and has 
ceased to have any influence on wages 
or profits. Besides this, there is a 
great unproductive consumption of ca¬ 
pital, during the stagnation which fol¬ 
lows a period of general over-trading. 
Establishments are shut up, or kept 
working without any profit, hands are 
discharged, and numbers of persons in 
all ranks, being deprived of their in¬ 
come, and thrown for support on their 
savings, find themselves, after the 
crisis has passed away, in a condition 
of more or less impoverishment. Such 
are the effects of a commercial revul¬ 
sion: and that such revulsions are al¬ 
most periodical, is a consequence of the 
very tendency of profits which we are 
considering. By the time a few years 


'ITS TO A MINIMUM. 445 

have passed over without, a crisis, so 
much additional capital has been ac¬ 
cumulated, that it is no longer possible 
to invest it at the accustomed profit: 
all public securities rise to a high price, 
the rate of interest on the best mer¬ 
cantile security falls very low, and the 
complaint is general among persons in 
business that no money is to be made. 
Does not this demonstrate how speedily 
profit would be at the minimum, and 
the stationary condition of capital 
would be attained, if these accumula¬ 
tions went on without any counteract¬ 
ing principle ? But the diminished 
scale of all safe gains, inclines persons 
to give a ready ear to any projects 
which hold out, though at the risk of 
loss, the hope of a higher rate of 
profit; and speculations ensue, which, 
with the subsequent revulsions, de¬ 
stroy, or transfer to foreigners, a con¬ 
siderable amount of capital, produce a 
temporary rise of interest and profit, 
make room for fresh accumulations, 
and the same round is recommenced. 

This, doubtless, is one considerable 
cause which arrests profits in their 
descent to the minimum, by sweeping 
away from time to time a part of the 
accumulated mass by which they are 
forced down. But this is not, as might 
be inferred from the language of some 
writers, the principal cause. If it 
were, the capital of the country would 
not increase ; but in England it does 
increase greatly and rapidly. This is 
shown by the increasing productiveness 
of almost all taxes, by the continual 
growth of all the signs of national 
wealth, and by the rapid increase of 
population, while the condition of the 
labourers is certainly not declining, but 
on the whole improving. These things 
prove that each commercial revulsion, 
however disastrous, is very far from de¬ 
stroying all the capital which has been 
added to the accumulations of the 
country since the last revulsion pre¬ 
ceding it, and that, invariably, room is 
either found or made for the profitable 
employment of a perpetually increasing 
capital, consistently with not forcing 
down profits to a lower rate. 

§ 6. This brings us to the second of 



446 BOOK IV. CHAPTER IV. § 7. 


tlie counter-agencies, namely, improve¬ 
ments in production. These evidently 
have the effect of extending what Mr. 
"Wakefield terms the field of employ¬ 
ment, that is, they enable a greater 
amount of capital to he accumulated 
and employed without depressing the 
rate of profit: provided always that they 
do not raise, to a proportional extent, 
the habits and requirements of the la¬ 
bourer. If the labouring class gain 
the full advantage of the increased 
cheapness, in other words, if money 
wages do not fall, profits are not raised, 
nor their fall retarded. But if the 
labourers people up to the improve¬ 
ment in their condition, and so relapse 
to their previous state, profits will rise. 
All inventions which cheapen any of 
the things consumed by the labourers, 
unless their requirements are raised in 
an equivalent degree, in time lower 
money wages: and by doing so, enable 
a greater capital to be accumulated 
and employed, before profits fall back 
to what they were previously. 

Improvements which only affect 
things consumed exclusively by the 
richer classes, do not operate precisely 
in the same manner. The cheapening 
of lace or velvet has no effect in dimi¬ 
nishing the cost of labour; and no 
mode can be pointed out in which it 
can raise the rate of profit, so as to 
make room for a larger capital before 
the minimum is attained. It, however, 
produces an effect which is virtually 
equivalent; it lowers, or tends to 
lower, the minimum itself. In the first 
place, increased cheapness of articles 
of consumption promotes the inclina¬ 
tion to save, by affording to all con¬ 
sumers a surplus which they may lay 
by, consistently with their accustomed 
manner of living; and unless they 
were previously suffering actual hard¬ 
ships, it will require little self-denial 
to save some part at least of this sur¬ 
plus. In the next place, whatever 
enables people to live equally well on 
a smaller income, inclines them to lay 
by capital for a lower rate of profit. 
If people can live on an independence 
of 500/. a year in the same manner as 
they formerly could on one of 1000/., 
some persons will be induced to save 


in hopes of the one, who would have 
been deterred by the more remote 
prospect of the other. All improve¬ 
ments, therefore, in the production of 
almost any commodity, tend in some 
degree to widen the interval which has 
to be passed before arriving at the 
stationary state : but this effect belongs 
in a much greater degree to the im¬ 
provements which affect the articles 
consumed by the labourer, since these 
conduce to it in two ways ; they induce 
people to accumulate for a lower profit, 
and they also raise the rate of profit 
itself. 

§ 7. Equivalent in effect to improve¬ 
ments in production, is the acquisition 
of any new power of obtaining cheap 
commodities from foreign countries. If 
necessaries are cheapened, whether 
they are so by improvements at home 
or importation from abroad, is exactly 
the same thing to wages and profits. 
Unless the labourer obtains, and by an 
improvement of his habitual standard, 
keeps, the whole benefit, the cost of 
labour is .lowered, and the rate of profit 
raised. As long as food can continue 
to be imported for an increasing popu¬ 
lation without any diminution of cheap¬ 
ness, so long the declension of profits 
through the increase of population and 
capital is arrested, and accumulation 
may go on without making the rate of 
profit draw nearer to the minimum. 
And on this ground it is believed by 
some, that the repeal of the corn laws 
has opened to this country a long era 
of rapid increase of capital with an 
undiminished rate of profit. 

Before inquiring whether this expec¬ 
tation is reasonable, one remark must 
be made, which is much at variance 
with commonly received notions. Fo¬ 
reign trade does not necessarily increase 
the field of employment for capital. It 
is not the mere opening of a market 
for a country’s productions, that tends 
to raise the rate of profits. If nothing 
were obtained in exchange for those 
productions but the luxuries of the rich, 
the expenses of no capitalist would be 
diminished ; profits would not be at all 
raised, nor room made for the accumu¬ 
lation of more capital without sub- 



TENDENCY OF PROFITS TO A MINIMUM. 447 


mitting to a reduction of profits : and 
if the attainment of the stationary- 
state were at all retarded, it would 
only he because the diminished cost at 
which a certain degree of luxury could 
be enjoyed, might induce people, in 
that prospect, to make fresh savings 
for a lower profit than they formerly 
were willing to do. When foreign 
trade makes room for more capital at 
the same profit, it is by enabling the 
necessaries of life, or the habitual ar¬ 
ticles of the labourer’s consumption, to 
be obtained at smaller cost. It may 
!o this in two ways ; by the importa- 
Jon either of those commodities them¬ 
selves, or of the means and appliances 
for producing them. Cheap iron has, 
in a certain measure, the same effect 
on profits and the cost of labour as 
cheap corn, because cheap iron makes 
cheap tools for agriculture and cheap 
machinery for clothing. But a foreign 
trade which neither directly, nor by 
any indirect consequence, increases 
the cheapness of anything consumed 
by the labourers, does not, any more 
than an invention or discovery in the 
like case, tend to raise profits or retard 
their fall; it merely substitutes the 
production of goods for foreign markets, 
in the room of the home production of 
luxuries, leaving the employment for 
capital neither greater nor less than 
before. It is true, that there is scarcely 
any export trade which, in a country 
that already imports necessaries or ma¬ 
terials, comes within these conditions : 
for every increase of exports enables 
ohe country to obtain all its imports on 
cheaper terms than before. 

A country which, as is now the case 
with England, admits food of all kinds, 
and all necessaries and the materials 
of necessaries, to be freely imported 
from all parts of the world, no longer 
depends on the fertility of her own soil 
to keep up her rate of profits, hut on the 
soil of the whole world. It remains 
to consider how far this resource can 
be counted upon for making head 
during a very long period against the 
tendency of profits to decline as capital 
increases. 

It must, of course, be supposed that 
with the increase of capital, popula¬ 


tion also increases ; for if it did not, 
the consequent rise of wages would 
bring down profits, in spite of any 
cheapness of food. Suppose then that 
the population of Great Britain goes 
on increasing at its present rate, and 
demands every year a supply of imported 
food considerably beyond that of the 
year preceding. This annual increase 
in the food demanded from the export¬ 
ing countries, can only be obtained 
either by great improvements in their 
agriculture, or by the application of a 
great additional capital to the growth 
of food. The former is likely to be a very 
slow process, from the rudeness and 
ignorance of the agricultural classes in 
the food-exporting countries of Europe, 
while the British colonies and the 
United States are already in possession 
of most of the improvements yet made, 
so far as suitable to their circumstances. 
There remains as a resource, the ex¬ 
tension of cultivation. And on this it 
is to be remarked, that the capital by 
which any such extension can take 
place, is mostly still to be created. In 
Boland, Russia, Hungary, Spain, the 
increase of capital is extremely slow. 
In America it is rapid, but not more 
rapid than the population. The prin¬ 
cipal fund at present available for sup¬ 
plying this country with a yearly in¬ 
creasing importation of food, is that 
portion of the annual savings of 
America which has heretofore been 
applied to increasing the manufacturing 
establishments of the United States, 
and which free trade in corn may pos¬ 
sibly divert from that purpose to grow¬ 
ing food for our market. This limited 
source of supply, unless great improve¬ 
ments take place in agriculture, cannot 
be expected to keep pace with the 
growing demand of so rapidly increas¬ 
ing a population as that of Great Bri¬ 
tain ; and if our population and capital 
continue to increase with their present 
rapidity, the only mode in which food 
can continue to be supplied cheaply to 
the one, is by sending the other abroad 
to produce it. 

§ 8. This brings us to the last of the 
counter-forces which check the down¬ 
ward tendency of profits in a country 



BOOK IV. CHAPTER V. § 1. 


443 

whose capital increases faster than 
that of its neighbours, and whose pro¬ 
fits are therefore nearer to the mi¬ 
nimum. This is, the perpetual over¬ 
flow of capital into colonies or foreign 
countries, to seek higher profits than 
can be obtained at home. I believe 
this to have been for many years one 
of the principal causes by which the 
decline of profits in England has been 
arrested. It has a twofold operation. 
In the first place, it does what a fire, 
or an inundation, or a commercial crisis 
would have done : it carries off a part 
of the increase of capital from which 
the reduction of profits proceeds. Se¬ 
condly, the capital so carried off is not 
lost, but is chiefly employed either in 
founding colonies, which become large 
exporters of cheap agricultural produce, 
or in extending and perhaps improv¬ 
ing the agriculture of older commu¬ 
nities. It is to the emigration of En¬ 
glish capital, that we have chiefly to 
look for keeping up a supply of cheap 
food and cheap materials of clothing, 
proportional to the increase of our 
population : thus enabling an increas¬ 
ing capital to find employment in the 
country, without reduction of profit, in 
producing manufactured articles with 
which to pay for this supply of raw 
produce. Thus, the exportation of 
capital is an agent of great efficacy in 
extending the field of employment for 
that which remains: and it may be 


said truly that, up to a certain point, 
the more capital we send away, the 
more we shall possess and be able to 
retain at home. 

In countries which are further ad¬ 
vanced in industry and population, and 
have therefore a lower rate of profit, 
than others, there is always, long 
before the actual minimum is reached, 
a practical minimum, viz. when profits 
have fallen so much below what they 
are elsewhere, that, were they to fall 
lower, all further accumulations would 
go abroad. In the present state of 
the industry of the world, when there 
is occasion, in any rich and improving 
country, to take the minimum of profits 
at all into consideration for practical 
purposes, it is only this practical mi¬ 
nimum that needs be considered. As 
long as there are old countries where 
capital increases very rapidly, and new 
countries where profit is still high, 
profits in the old countries will not sink 
to the rate which would put a stop to 
accumulation ; the fall is stopped at the 
point which sends capital abroad. It 
is only, however, by improvements in 
production, and even in the production 
of things consumed by labourers, that 
the capital of a country like England 
is prevented from speedily reaching 
that degree of lowness of profit, which 
would cause all further savings to be 
sent to find employment in the colonies, 
or in foreign countries. 


CHAPTER V. 

CONSEQUENCES OF THE TENDENCY OF PROFITS TO A MINIMUM. 


§ 1. The theory of the effect of ac¬ 
cumulation on profits, laid down in the 
preceding chapter, materially alters 
many of the practical conclusions which 
might otherwise be supposed to follow 
from the general principles of Political 
Economy, and which were, indeed, long 
admitted as true by the highest autho¬ 
rities on the subject. 

It must greatly abate, or rather, al¬ 
together destroy, in countries where 


profits are low, the immense impor¬ 
tance which used to be attached by 
political economists to the effects which 
an event or a measure of government 
might have in adding to or subtracting 
from the capital of the country. We 
have now seen that the lowness of pro¬ 
fits is a proof that the spirit of accu¬ 
mulation is so active, and that the 
increase of capital has proceeded at so 
rapid a rate, as to outstrip the two 





TENDENCY OF PROFITS TO A MINIMUM. 


counter-agencies, improvements in pro¬ 
duction, and increased supply of cheap 
necessaries from abroad: and that un¬ 
less a considerable portion of the annual 
increase of capital were either periodi¬ 
cally destroyed, or exported for foreign 
investment, the country would speedily 
attain the point at which further accu¬ 
mulation would cease, or at least spon¬ 
taneously slacken, so as no longer to 
overpass the march of invention in the 
arts which produce the necessaries of 
life. In such a state of things as this, 
a sudden addition to the capital of the 
country, unaccompanied by any increase 
of productive power, would be but of 
transitory duration ; since, by depress¬ 
ing profits and interest, it would either 
diminish by a corresponding amount 
the savings which would be made from 
income in the year or two following, or 
it would cause an equivalent amount 
to be sent abroad, or to be wasted in 
rash speculations. Neither, on the 
other hand, would a sudden abstraction 
of capital, unless of inordinate amount, 
have any real effect in impoverishing 
the country. After a few months or 
years, there would exist in the coun¬ 
try just as much capital as if none had 
been taken away. The abstraction, by 
raising profits and interest, would give 
a fresh stimulus to the accumulative 
principle, which would speedily fill up 
the vacuum. Probably, indeed, the 
only effect that would ensue, would be 
that for some time afterwards less capi¬ 
tal would be exported, and less thrown 
away in hazardous speculation. 

In the first place, then, this view of 
things greatly weakens, in a wealthy 
and industrious country, the force of 
the economical argument against the 
expenditure of public money for really 
valuable, even though industriously un¬ 
productive, purposes. If for any great 
object of justice or philanthropic policy, 
such as the industrial regeneration of 
Ireland, or a comprehensive measure 
of colonization or of public education, 
it were proposed to raise a large sum 
by way of loau, politicians need not 
demur to the abstraction of so much 
capital, as tending to dry up the per¬ 
manent sources of the country’s wealth, 
and diminish the fund which supplies 
P.E. 


449 

the subsistence of the labouring popu¬ 
lation. The utmost expense which 
could be requisite for any of these pur¬ 
poses, would not in all probability de¬ 
prive one labourer of employment, or 
diminish the next year’s production by 
one ell of cloth or one bushel of grain. 
In poor countries, the capital of the 
country requires the legislator’s sedu¬ 
lous care; he is bound to be most 
cautious of encroaching upon it, and 
should favour to the utmost its accu¬ 
mulation at home, and its introduction 
from abroad. But in rich, populous, 
and highly cultivated countries, it is 
not capital which is the deficient ele¬ 
ment, but fertile land ; and what the 
legislator should desire and promote, is 
not a greater aggregate saving, but a 
greater return to savings, either by im¬ 
proved cultivation, or by access to the 
produce of more fertile lands in other 
parts of the globe. In such countries, 
the government may take any moderate 
portion of the capital of the country 
and expend it as revenue, without 
affecting the national wealth: the whole 
being either drawn from that portion 
of the annual savings which would 
otherwise be sent abroad, or being sub¬ 
tracted from the unproductive expendi¬ 
ture of individuals for the next year or 
two, since every million spent makes 
room for another million to be saved 
before reaching the overflowing point. 
When the object in view is worth the 
sacrifice of such an amount of the ex¬ 
penditure that furnishes the daily en¬ 
joyments of the people, the only well- 
grounded economical objection against 
taking .the necessary funds directly 
from capital, consists of the inconve¬ 
niences attending the process of rais¬ 
ing a revenue by taxation, to pay the 
interest of a debt. 

The same considerations enable us 
to throw aside as unworthy of regard, 
one of the common arguments against 
emigration as a means of relief for the 
labouring class. Emigration, it is said, 
can do no good to the labourers, if, in 
order to defray the cost, as much must 
be taken away from the capital of the 
country as from its population. That 
anything like this proportion could re¬ 
quire to bo abstracted from capital for 

G G 






450 BOOK IV. CH 

the purpose even of the most extensive 
colonization, few, I should think, would 
now assert: hut even on that untenable 
supposition, it is an error to suppose 
that no benefit would be conferred on 
the labouring class. If one-tenth ot 
the labouring people of England were 
transferred to the colonies, and along 
with them one-tenth of the circulating 
capital of the country, either wages, or 
profits, or both, would be greatly bene¬ 
fited, by the diminished pressure of 
capital and population upon the ferti¬ 
lity of the land. There would be a 
reduced demand for food: the inferior 
arable lands would be thrown out of 
cultivation, and would become pasture ; 
the superior would be cultivated less 
highly, but with a greater proportional 
return , food would be lowered in price, 
and though money wages would not 
rise, every labourer would be consider¬ 
ably improved in circumstances; an 
improvement which, if no increased 
stimulus to population and fall of wages 
ensued, would be permanent; while if 
there did, profits would rise, and accu¬ 
mulation start forward so as to repair 
the loss of capital. The landlords alone 
would sustain some loss of income; and 
even they, only if colonization went to 
the length of actually diminishing capi¬ 
tal and population, but not if it merely 
carried off the annual increase. 

§ 2. From the same principles we 
are now able to arrive at a final con¬ 
clusion respecting the effects which 
machinery, and generally the sinking 
of capital for a productive purpose, pro¬ 
duce upon the immediate and ultimate 
interests of the labouring class. The 
characteristic property of this class of 
industrial improvements is the conver¬ 
sion of circulating capital into fixed : 
and it was shown in the First Book,* 
that in a country where capital accu¬ 
mulates slowly, the introduction of ma¬ 
chinery, permanent improvements of 
land, and thelike,might be, for the time, 
extremely injurious; since the capital 
so employed might be directly taken 
from the wages fund, the subsistence 
of the people and the employment for 
labour curtailed, and the gross annual 
* Supra, p. 69. 


APT El’ V. § 2. 

produce of the country actually dimi¬ 
nished. But in a country of great 
annual savings and low profits, no such 
effects need be apprehended. Since 
even the emigration of capital, or its 
unproductive expenditure, or its abso¬ 
lute waste, do not in such a country, 
if confined within any moderate bounds, 
at all diminish the aggregate amount 
of the wages fund—still less can the 
mere conversion of a like sum into fixed 
capital, which continues to be produc¬ 
tive, have that effect. It merely draws 
off at one orifice what was already flow¬ 
ing out at another; or if not, the greater 
vacant space left in the reservoir does 
but cause a greater quantity to flow in. 
Accordingly, in spite of the mischievous 
derangements of the money-market 
which have been occasioned by the 
sinking of great sums in railways, I was 
never able to agree with those who 
apprehended mischief, from this source, 
to the productive resources of the coun¬ 
try. Not on the absurd ground (which 
to any one acquainted with the ele¬ 
ments of the subject needs no confuta¬ 
tion) that railway expenditure is a mere 
transfer of capital from hand to hand, 
by which nothing is lost or destroyed. 
This is true of what is spent in the pur¬ 
chase of the land ; a portion too of what 
is paid to parliamentary agents, coun¬ 
sel, engineers, and surveyors, is saved 
by those who receive it, and becomes 
capital again : but what is laid out 
in the bond fide construction of the* rail¬ 
way itself, is lost and gone; when once 
expended, it is incapable of ever being 
paid in wages or applied to the main¬ 
tenance of labourers again ; as a matter 
of account, the result is that so much 
food and clothing and tools have been 
consumed, and the country has got a 
railway instead. But what I would 
urge is, that sums so applied are mostly 
a mere appropriation of the annual 
overflowing which would otherwise have 
gone abroad, or been thrown away un- 
profitably, leaving neither a railway nor 
any other tangible result. The railway 
gambling of 1844 and 1845 probably 
saved the country from a depression of 
profits and interest, and a rise of all 
public and private securities, which 
would have engendered still wilder spe- 



TENDENCY OF PROFITS TO A MINIMUM. 


dilations, and when the effects came 
afterwards to he complicated by the 
scarcity of food, would have ended in a 
still more formidable crisis than was 
experienced in the years immediately 
following. In the poorer countries of 
Europe, the rage for railway construc¬ 
tion might have had worse consequences 
than in England, were it not that in 
those countries such enterprises are in 
a great measure carried on by foreign 
capital. The railway operations of the 
various nations of the world may be 
looked upon as a sort of competition 
for the overflowing capital of the coun¬ 
tries where profit is low and capital 
abundant, as England and Holland. 
The English railway speculations are 
a struggle to keep our annual increase 
of capital at home; those of foreign 
countries are an effort to obtain it.* 

It already appears from these con¬ 
siderations, that the conversion of cir¬ 
culating capital into fixed, whether by 
railways, or manufactories, or ships, or 
machinery, or canals, or mines, or works 
of drainage and irrigation, is not likely, 
in any rich country, to diminish the 
gross produce or the amount of employ¬ 
ment for labour. How much then is the 
case strengthened, when we consider 
that these transformations of capital are 
of the nature of improvements in produc¬ 
tion, which, instead of ultimately dimi¬ 
nishing circulating capital, are the ne¬ 
cessary conditions of its increase ; since 
they alone enable a country to possess 
a constantly augmenting capital, with¬ 
out reducing profits to the rate which 
■would cause accumulation to stop. 
There is hardly any increase of fixed 
capital which does not enable the 
country to contain eventually a larger 
circulating capital, than it otherwise 
■could possess and employ within its 

* It is hardly needful to point out how 
fully the remarks in the text have been veri¬ 
fied by subsequent facts. The capital of the 
country, far from having been in any degree 
impaired by the large amount sunk in rail¬ 
way construction, was soon again over¬ 
flowing. 


451 

own limits; for there is hardly any 
creation of fixed capital which, when 
it proves successful, does not cheapen 
the articles on which wages are habi¬ 
tually expended. All capital sunk in 
the permanent improvement of land 
lessens the cost of food and materials; 
almost all improvements in machinery 
cheapen the labourer’s clothing or 
lodging, or the tools with which these 
are made; improvements in locomotion, 
such as railways, cheapen to the con¬ 
sumer all things which are brought 
from a distance. All these improve¬ 
ments make the labourers better off 
with the same money wages, better off’ 
if they do not increase their rate of 
multiplication. But if they do, and 
wages consequently fall, at least profits 
rise, and, while accumulation receives 
an immediate stimulus, room is made 
for a greater amount of capital before 
a sufficient motive arises for sending t 
abroad. Even the improvements which 
do not cheapen the things consumed 
by the labourer, and which, therefore, 
do not raise profits nor retain capital 
in the country, nevertheless, as we have' 
seen, by lowering the minimum of profit 
for which people will ultimately consent 
to save, leave an ampler margin than 
previously for eventual accumulation, 
before arriving at the stationary state. 

We may conclude, then, that im¬ 
provements in production, and emigra¬ 
tion of capital to the more fertile soils 
and unworked mines of the uninhabited 
or thinly peopled parts of the globe, do 
not, as appears to a superficial view, 
diminish the gross produce and the 
demand for labour at home, but, on 
the contrary, are what we have chiefly 
to depend on for increasing both, and 
are even the necessary conditions of 
any great or prolonged augmentation 
of either. Nor is it any exaggeration 
to say, that within certain, and not 
very narrow, limits, the more capital a 
country like England expends in these 
two ways, the more she will have left. 




452 


BOOK IV CHAPTER VI. § 1. 


CHAPTER VI. 

OF THE STATIONARY STATE. 


§ 1. The preceding chapters com¬ 
prise the general theory of the econo¬ 
mical progress of society, in the sense 
in which those terms are commonly 
understood; the progress of capital, of 
population, and of the productive arts. 
But in contemplating any progressive 
movement, not in its nature unlimited, 
the mind is not satisfied with merely 
tracing the laws of the movement; it 
cannot but ask the further question, to 
what goal? Towards what ultimate 
point is society tending by its indus¬ 
trial progress? When the progress 
ceases, in what condition are we to 
expect that it will leave mankind ? 

It must always have been seen, more 
or less distinctly, by political econo¬ 
mists, that the increase of wealth is 
not boundless : that at the end of what 
they term the progressive state lies the 
stationary state, that all progress in 
wealth is but a postponement of this, 
and that each step in advance is an 
approach to it. We have now been 
led to recognise that this ultimate goal 
is at all times near enough to be fully 
in view; that we are always on the 
verge of it, and that if we have not 
reached it long ago, it is because the 
goal itself flies before us. The richest 
and most prosperous countries would 
very soon attain the stationary state, 
if no further improvements were made 
in the productive arts, and if there 
were a suspension of the overflow of 
capital from those countries into the 
uncultivated or ill-cultivated regions of 
the earth. 

This impossibility of ultimately 
avoiding the stationary state—this 
irresistible necessity that the stream 
of human industry should finally 
spread itself out into an apparently 
stagnant sea—must have been, to the 
political economists of the last two 
generations, an unpleasing and dis¬ 
couraging prospect; for the tone and 
tendency of their speculations goes 


completely to identify all that is econo¬ 
mically desirable with the progressive 
state, and with that alone. With Mr. 
M'Culloch, for example, prosperity does 
not mean a large production and a good 
distribution of wealth, but a rapid in¬ 
crease of it; his test of prosperity is 
high profits; and as the tendency of 
that very increase of wealth, which he 
calls prosperity, is towards low profits, 
economical progress, according to him, 
must tend to the extinction of pros¬ 
perity. Adam Smith always assumes 
that the condition of the mass of the 
people, though it may not be positively 
distressed, must be pinched and stinted 
in a stationary condition of wealth, and 
can only be satisfactory in a progressive 
state. The doctrine that, to however 
distant a time incessant struggling may 
put off our doom, the progress of society 
must “end in shallows and in miseries,” 
far from being, as many people still 
believe, a wicked invention of Mr. Mal- 
thus, was either expressly or tacitly 
affirmed by his most distinguished pre¬ 
decessors, and can only be successfully 
combated on his principles. Before at¬ 
tention had been directed to the prin¬ 
ciple of population as the active force 
in determining the remuneration of 
labour, the increase of mankind was 
virtually treated as a constant quan¬ 
tity: it was, at all events, assumed 
that in the natural and normal state 
of human affairs population must con¬ 
stantly increase, from which it followed 
that a constant increase of the means 
of support was essential to the physical 
comfort of the mass of mankind. The 
publication of Mr. Malthus’ Essay is 
the era from which better views of this 
subject must be dated; and notwith¬ 
standing the acknowledged errors of 
his first edition, few writers have done 
more than himself, in the subsequent 
editions, to promote these juster and 
more hopeful anticipations. 

Even in a progressive state of capital, 



THE STATIONARY STATE. 453 


In old countries, a conscientious or pru¬ 
dential restraint on population is indis¬ 
pensable, to prevent the increase of 
numbers from outstripping the in¬ 
crease of capital, and the condition 
of the classes who are at the bottom 
of society from being deteriorated. 
Where there is not, in the people, or 
in some very large proportion of them, 
a resolute resistance to this deteriora¬ 
tion—a determination to preserve an es¬ 
tablished standard of comfort—the con¬ 
dition of the poorest class sinks, even 
in a progressive state, to the lowest 
point which they will consent to en¬ 
dure. The same determination would 
be equally effectual to keep up their 
condition in the stationary state, and 
would be quite as likely to exist. In¬ 
deed, even now, the countries in which 
the greatest prudence is manifested in 
the regulating of population, are often 
those in which capital increases least 
rapidly. Where there is an indefinite 
prospect of employment for increased 
numbers, there is apt to appear less 
necessity for prudential restraint. If it 
were evident that a new hand could not 
obtain employment but by displacing, 
or succeeding to, one already employed, 
the combined influences of prudence and 
public opinion might in some measure 
be relied on for restricting the coming 
generation within the numbers neces¬ 
sary for replacing the present. 

§ 2. I cannot, therefore, regard the 
stationary state of capital and wealth 
with the unaffected aversion so gene¬ 
rally manifested towards it by political 
economists of the old school. 1 am in¬ 
clined to believe that it would be, on 
the whole, a very considerable improve¬ 
ment on our present condition. I con¬ 
fess I am not charmed with the ideal 
of life held out by those who think 
that the normal state of human beings 
is that of struggling to get on; that 
the trampling, crushing, elbowing, and 
tmading on each other’s heels, which 
form the existing type of social life, 
are the most desirable lot of human 
kind, or anything but the disagreeable 
symptoms of one of the phases of in¬ 
dustrial progress. It may be a neces- 
•sary stage in the progress of civiliza¬ 


tion, and those European nations which 
have hitherto been so fortunate as to 
be preserved from it, may have it yet 
to undergo. It is an incident of growth, 
not a mark of decline, for it is not ne¬ 
cessarily destructive of the higher as¬ 
pirations and the heroic virtues; as 
America, in her great civil war, is 
proving to the world, both by her con¬ 
duct as a people and by numerous 
splendid individual examples, and as 
England, it is to be hoped, would also 
prove on an equally trying and exciting 
occasion. But it is not a kind of social 
perfection which philanthropists to 
come will feel any very eager desire to 
assist in realizing. Most fitting, in¬ 
deed, is it, that while riches are power, 
and to grow as rich as possible the 
universal object of ambition, the path 
to its attainment should be open to all, 
without favour or partiality. But the 
best state for human nature is that in 
which, wdiile no one is poor, no one 
desires to be richer, nor has any reason 
to fear being thrust back, by the efforts 
of others to push themselves forward. 

That the energies of mankind should 
be kept in employment by the struggle 
for riches, as they were formerly by 
the struggle of war, until the better 
minds succeed in educating the others 
into better things, is undoubtedly more 
desirable than that they should rust 
and stagnate. While minds are coarse 
they require coarse stimuli, and let 
them have them. In the meantime, 
those who do not accept the present 
very early stage of human improve¬ 
ment as its ultimate type, may be 
excused for being comparatively indif¬ 
ferent to the kind of economical pro¬ 
gress which excites the congratulations 
of ordinary politicians; the mere in¬ 
crease of production and accumulation. 
For the safety of national independence 
it is essential that a country should not 
fall much behind its neighbours in these 
things. But in themselves they are of 
little importance, so long as either the 
increase of population or anything else 
prevents the mass of the people from 
reaping any part of the benefit of them. 
I know not why it should be matter of 
congratulation that persons who are 
already richer than any one needs to 




454 BOOK IV. CHAPTER VI. § 2. 


l>c, should have doubled their means of 
consuming things which give little or 
no pleasure except as representative of 
wealth ; or that numbers of individuals 
should pass over, every year, from the 
middle classes into a richer class, or 
from the class of the occupied rich to 
that of the unoccupied. It is only in 
the backward countries of the world 
that increased production is still an im¬ 
portant object: in those most advanced, 
what is economically needed is a better 
distribution, of which one indispensable 
means is a stricter restraint on popula¬ 
tion. Levelling institutions, either of 
a just or of an unjust kind, cannot 
alone accomplish it; they may lower 
the heights of society, but they cannot, 
of themselves, permanently raise the 
depths. 

On the other hand, we may suppose 
this better distribution of property at¬ 
tained, by the joint effect of the pru¬ 
dence and frugality of individuals, and 
of a system of legislation favouring | 
equality of fortunes, so far as is con¬ 
sistent with the just claim of the indi¬ 
vidual to the fruits, whether great or 
small, of his or her own industry. We 
may suppose, for instance, (according 
to the suggestion thrown out in a former 
chapter,*) a limitation of the sum which 
any one person may acquire by gift or 
inheritance, to the amount sufficient to 
constitute a moderate independence. 
Under this twofold influence, society 
would exhibit these leading features: 
a well-paid and affluent body of la¬ 
bourers ; no enormous fortunes, except 
what were earned and accumulated 
during a single lifetime; but a much 
larger body of persons than at present, 
not only exempt from the coarser toils, 
but with sufficient leisure, both physical j 
and mental, from mechanical details, i 
to cultivate freely the graces of life, 
and afford examples of them to the 
classes less favourably circumstanced 
lor their growth. This condition of 
society, so greatly preferable to the 
present, is not only perfectly compatible i 
with the stationary state, but, it would i 
seem, more naturally allied with that j 
state than with any other. 

T'here is room in the world, no doubt, 

* Supra, p. 13!). 


and even in old countries, for a great" 
increase of population, supposing the 
arts of life to go on improving, and 
capital to increase. But even if innocu¬ 
ous, I confess I see very little reason! 
for desiring it. The density of popula¬ 
tion necessary to enable mankind to- 
obtain, in the greatest degree, all the 
advantages both of co-operation and of 
social intercourse, has, in all the most 
populous countries, been attained. A 
population may be too crowded, though 
all be amply supplied with food and 
raiment. It is not good for man to be 
kept perforce at all times in the pre¬ 
sence of his species. A world from which 
solitude is extirpated, is a very poor 
ideal. Solitude, in the sense of being 
often alone, is essential to any depth of 
meditation or of character; and solb 
tude in the presence of natural beauty 
and grandeur, is the cradle of thoughts 
and aspirations which are not only good 
for the individual, but which society 
could ill do without. ISor is there much 
satisfaction in contemplating the world 
with nothing left to the spontaneous 
activity of nature ; with every rood of 
land brought into cultivation, which is 
capable of growing food for human 
beings ; every flowery waste or natural 
pasture ploughed up, all quadrupeds or 
birds which are not domesticated for 
man’s use exterminated as his rivals 
for food, every hedgerow or superfluous 
tree rooted out, and scarcely a place 
left where a wild shrub or flower could 
grow without being eradicated as a 
weed in the name of improved agricul¬ 
ture. If the earth must lose that great 
portion of its pleasantness which it. 
owes to things that the unlimited in¬ 
crease of wealth and population would 
extirpate from it, for the mere purpose 
of enabling it to support a larger, but 
not a better or a happier population, I 
sincerely hope, for the sake of posterity, 
that they will be content to be sta¬ 
tionary, long before necessity compels 
them to it. 

It is scarcely necessary to remark 
that a. stationary condition of capital 
and population implies no stationary 
state of human improvement. T'here 
would be as much scope as ever for all 
kinds of mental culture, and moral and 







PROBABLE FUTURE OF THE LABOURING CLASSES. 455 


social progress; as much room for im¬ 
proving the Art of Living, and much 
more likelihood of its being improved, 
when minds ceased to be engrossed by 
the art of getting on. Even the indus¬ 
trial arts might be as earnestly and as 
successfully cultivated, with this sole 
difference, that instead of serving no 
purpose but the increase of wealth, in¬ 
dustrial improvements would produce 
their legitimate effect, that of abridging 
labour. Hitherto it is questionable if 
all the mechanical inventions yet made 
have lightened the day’s toil of any 
human being. They have enabled a j 
greater population to live the same life i 
of drudgery and imprisonment, and an 


increased number of manufacturers and 
others to make fortunes. They have 
increased the comforts of the middle 
classes. But they have not yet begun 
to effect those great changes in human 
destiny, which it is in their nature and 
in their futurity to accomplish. Only 
when, in addition to just institutions, 
the increase of mankind shall be under 
the deliberate guidance of judicious fore¬ 
sight, can the conquests made from the 
powers of nature by the intellect and 
energy of scientific discoverers, become 
the common property of the species, 
and the means of improving and ele¬ 
vating the universal lot. 


CHAPTER VII. 


ON THE PROBABLE FUTURITV 

§ 1. The observations in the pre¬ 
ceding chapter had for their principal 
object to deprecate a false ideal of 
human society. Their applicability to 
the practical purposes of present times, 
consists in moderating the inordinate 
importance attached to the mere in¬ 
crease of production, and fixing atten¬ 
tion upon improved distribution, and a 
large remuneration of labour, as the 
two desiderata. Whether the aggre¬ 
gate produce increases absolutely or 
not, is a thing in which, after a certain 
amount has been obtained, neither the 
legislator nor the philanthropist need 
feel any strong interest: but, that it 
should increase relatively to the num¬ 
ber of those who share in it, is of the 
utmost possible importance; and this, 
(whether the wealth of mankind be 
stationary, or increasing at the most 
rapid rate ever known in an old country,) 
must depend on the opinions and habits 
of the most numerous class, the class of 
manual labourers. 

When I speak, either in this place or 
elsewhere, of “ the labouring classes,” 
or of labourers as a “ class,” I use those 
phrases in compliance with custom, 
and as descriptive of an existing, but 


OF THE LABOURING CLASSES. 

by no means a necessary or permanent 
state of social relations. I do not ic- 
cognise as either just or salutary, a 
state of society in which there is any 
“ class” which is not labouring; any 
human beings, exempt from bearing 
their share of the necessary labours of 
human life, except those unable to 
labour, or who have fairly earned rest 
by previous toil. So long, however, as 
the great social evil exists of a non¬ 
labouring class, labourers also consti¬ 
tute a class, and may be spoken of, 
though only provisionally, in that cha¬ 
racter. 

Considered in its moral and social 
aspect, the state of the labouring people 
has latterly been a subject of much 
more speculation and discussion than 
formerly ; and the opinion, that it is 
not now what it ought to be, has be¬ 
come very general. The suggestions 
which have been promulgated, and the 
controversies which have been excited, 
on detached points rather than on the 
foundations of the subject, have put in 
evidence the existence of two conflict¬ 
ing theories, respecting the social posi¬ 
tion desirable for manual labourers. 
The one may be called the theory of 






456 


BOOK IV. CHAPTER VII. § I. 


dependence and protection, the other 
that of self-dependence. 

According to the former theory, the 
lot of the poor, in all things which 
affect them collectively, should be re¬ 
gulated for them, not by them. They 
should not be required or encouraged 
to think for themselves, or give to their 
own reflection or forecast an influential 
voice in the determination of their des¬ 
tiny. It is supposed to be the duty of 
the higher classes to think for them, 
and to take the responsibility of their 
lot, as the commander and officers of 
an army take that of the soldiers com¬ 
posing it. This function, it is con¬ 
tended, the higher classes should pre¬ 
pare themselves to perform conscien¬ 
tiously, and their whole demeanour 
should impress the poor with a reliance 
on it, in order that, while yielding pas¬ 
sive and active obedience to the rules 
prescribed for them, they may resign 
themselves in all other respects to a 
trustful insouciance, and repose under 
the shadow of their protectors. The 
relation between rich and poor, accord¬ 
ing to this theory, (a theory also ap¬ 
plied to the relation between men and 
women) should be only partly authori¬ 
tative : it should be amiable, moral, 
and sentimental: affectionate tutelage 
on the one side, respectful and grateful 
deference on the other. The rich should 
be in loco parentis to the poor, guiding 
and restraining them like children. Of 
spontaneous action on their part there 
should be no need. They should be 
called on for nothing but to do their 
day’s work, and to be moral and reli¬ 
gious. Their morality and religion 
should be provided for them by their 
superiors, who should see them pro¬ 
perly taught it, and should do all that 
is necessary to ensure their being, in 
return for labour and attachment, pro¬ 
perly fed, clothed, housed, spiritually 
edified, and innocently amused. 

This is the ideal of the future, in the 
minds of those whose dissatisfaction 
with the Present assumes the form of 
affection and regret towards the Past. 
Like other ideals, it exercises an un¬ 
conscious influence on the opinions 
and sentiments of numbers who never 
consciously guide themselves by any 


ideal. It has also this in common with 
other ideals, that it has never been his¬ 
torically realized. It makes its appeal 
to our imaginative sympathies in the 
character of a restoration of the good 
times of our forefathers. But no times 
can be pointed out in which the higher 
classes of this or any other country per¬ 
formed a part even distantly resembling 
the one assigned to them in this theory. 
It is an idealization, grounded on the 
conduct and character of here and there 
an individual. All privileged and 
powerful classes, as such, have used 
their power in the interest of their own 
selfishness, and have indulged their 
self-importance in despising, and not in 
lovingly caring for, those who were, in 
their estimation, degraded, by being 
under the necessity of working for their 
benefit. I do not affirm that what has 
always been must always be, or that 
human improvement has no tendency 
to correct the intensely selfish feelings 
engendered by power; but though the 
evil may be lessened, it cannot be eradi¬ 
cated, until the power itself is with¬ 
drawn. This, at least, seems to me un¬ 
deniable, that long before the superior 
classes could be sufficiently improved 
to govern in the tutelary manner sup¬ 
posed, the inferior classes would be too 
much improved to be so governed. 

I am quite sensible of all that is se¬ 
ductive in the picture of society which 
this theory presents. Though the facts 
of it have no prototype in the past, the 
feelings have. In them lies all that 
there is of reality in the conception. 
As the idea is essentially repulsive of 
a society only held together by the re¬ 
lations and feelings arising out of pe¬ 
cuniary interests, so there is something 
naturally attractive in a form of society 
abounding in strong personal attach¬ 
ments and disinterested self-devotion. 
Of such feelings it must be admitted 
that the relation of protector and pro¬ 
tected has hitherto been the richest 
source. The strongest attachments of 
human beings in general, are towards 
the things or the persons that stand 
between them and some dreaded evil. 
Hence, in an age of lawless violence 
and insecurity, and general hardness 
and roughness of manners, in which 




PROBABLE FUTURE OF THE LABOURING CLASSES. 457 


life is beset with dangers and sufferings 
at every step, to those who have neither 
a commanding position of their own, 
aor a claim on the protection of some 
one who has—a generous giving of pro¬ 
tection, and a grateful receiving of it, 
are the strongest ties which connect 
human beings; the feelings arising from 
that relation are their warmest feel¬ 
ings; all the enthusiasm and tender¬ 
ness of the most sensitive natures gather 
round it; loyalty on the one part and 
chivalry on the other are principles ex¬ 
alted into passions. I do not desire to 
depreciate these qualities. The error 
lies in not perceiving, that these virtues 
and sentiments, like the clanship and 
the hospitality of the wandering Arab, 
belong emphatically to a rude and im¬ 
perfect state of the social union, and 
that the feelings between protector and 
protected, whether between kings and 
subjects, rich and poor, or men and 
women, can no longer have this beauti¬ 
ful and endearing character, where 
there are no longer any serious dangers 
from which to protect. What is there 
in the present state of society to make 
it natural that human beings,ofordinary 
strength and courage, should glow with 
the warmest gratitude and devotion in 
return for protection? The laws pro¬ 
tect them; wherever the laws do not 
criminally fail in their duty. To be 
under the power of some one, instead 
of being as formerly the sole condition 
of safety, is now T , speaking generally, 
the only situation which exposes to 
grievous wrong. The so-called protec¬ 
tors are now the only persons against 
whom, in any ordinary circumstances, 
protection is needed. The brutality 
and tyranny with which every police 
report is filled, are those of husbands to 
wives, of parents to children. That 
the law does not prevent these atroci¬ 
ties, that it is only now making a first 
timid attempt to repress and punish 
them, is no matter of necessity, but the 
deep disgrace of those by whom the 
laws are made and administered. No 
man or woman who either possesses or 
is able to earn an independent liveli¬ 
hood, requires any other protection 
than that which the law could and 
ought to give. This being the case, it 


argues great ignorance of human na¬ 
ture to continue taking for granted 
that relations founded on protection 
must always subsist, and not to see 
that the assumption of the part of pro¬ 
tector, and of the power which belongs 
to it, without any of the necessities 
which justify it, must engender feelings 
opposite to loyalty. 

Of the working men, at least in the 
more advanced countries of Europe, it 
may be pronounced certain, that the 
patriarchal or paternal system of go¬ 
vernment is one to which they wall not < 
again be subject. That question was 
decided, when they were taught to 
read, and allowed access to newspapers 
and political tracts; when dissenting 
preachers were suffered to go among 
them, and appeal to their faculties and 
feelings in opposition to the creeds 
professed and countenanced by their 
superiors; when they were brought 
together in numbers, to work socially 
under the same roof; when railways 
enabled them to shift from place to 
place, and change their patrons and 
employers as easily as their coats; 
when they w r ere encouraged to seek a 
share in the government, by means of 
the electoral, franchise. The working 
classes have taken their interests into 
their own hands, and are perpetually 
showing that they think the interests of 
their employers not identical with their 
own, but opposite to them. Some 
among the higher classes flatter them¬ 
selves that these tendencies may be 
counteracted by moral and religious 
education ; but they have let the time 
go by for giving an education which 
can serve their purpose. The principles 
of the Reformation have reached as 
low down in society as reading and 
wuiting, and the poor wall not much 
longer accept morals and religion of 
other people’s prescribing. I speak 
more particularly of this country, espe¬ 
cially the town population, and the 
districts of the most scientific agricul¬ 
ture or the highest wages, Scotland 
and the north of England. Among 
the more inert and less modernized 
agricultural population of the southern 
counties, it might be possible for tho 
gentry to retain, for some time longer, 





BOOK IV. CHAPTER VII. § 2. 


458 

something of the ancient deference and 
submission of the poor, by bribing 
them with high wages and constant 
employment; by ensuring them sup¬ 
port, and never requiring them to do 
anything which they do not like. But 
these are two conditions which never 
have been combined, and never can be, 
for long together. A guarantee of 
subsistence can only be practically 
kept up, when work is enforced, and 
superfluous multiplication restrained, 
by at least a moral compulsion. It is 
then, that the would-be revivers of old 
times which they do not understand, 
would feel practically in how hopeless 
a task they were engaged. The whole 
fabric of patriarchal or seignorial in¬ 
fluence, attempted to be raised on the 
foundation of caressing the poor, would 
be shattered against the necessity of 
enforcing a stringent Poor-law. 

§ 2. Tt is on a far other basis that 
the well-being and well-doing of the 
labouring people must henceforth rest. 
The poor have come out of leading- 
strings, and cannot any longer be 
governed or treated like children. To 
their own qualities must now be com¬ 
mended the care of their destiny. Modern 
nations will have to learn the lesson, 
that the well-being of a people must 
exist by means of the justice and 
self-government, the gikciiogvvii and 
cwtypoavvi), of the individual citizens. 
The theory of dependence attempts to 
dispense with the necessity of these 
qualities in the dependent classes. But 
now, when even in position they are 
becoming less and less dependent, and 
their minds less and less acquiescent 
in the degree of dependence which re¬ 
mains, the virtues of independence are 
those which they stand in need of. 
Whatever advice, exhortation, or guid¬ 
ance is held out to the labouring classes, 
must henceforth be tendered to them 
as equals, and accepted by them with 
their eyes open. The prospect of the 
future depends on the degree in which 
they can be made rational beings. 

There is no reason to believe that 
prospect other than hopeful. The 
progress indeed has hitherto been, and 
still is, slow. But there is a sponta¬ 


neous education going on in the minds 
of the multitude, which may be greatly 
accelerated and improved by artific : al 
aids. The instruction obtained from 
newspapers and political tracts may 
not be the most solid kind of instruc¬ 
tion, but it is an immense improvement 
upon none at all. What it does for a 
people, has been admirably exemplified 
during the cotton crisis, in the case of 
the Lancashire spinners and weavers; 
who have acted with the consistent 
good sense and forbearance so justly 
applauded, simply because, being 
readers of newspapers, they understood 
the causes of the calamity which had 
befallen them, and knew that it was in 
no way imputable either to their em¬ 
ployers or to the Government. It is 
not certain that their conduct would 
have been as rational and exemplary, 
if the distress had preceded the salu¬ 
tary measure of fiscal emancipation 
which gave existence to the penny 
press. The institutions for lectures 
and discussion, the collective delibe¬ 
rations on questions of common inte¬ 
rest, the trades unions, the political 
agitation, all serve to awaken public 
spirit, to diffuse variety of ideas among 
the mass, and to excite thought and 
reflection in the more intelligent. 
Although the too early attainment of 
political franchises by the least edu¬ 
cated class might retard, instead of 
promoting, their improvement, there 
can be little doubt that it has been 
greatly stimulated by the attempt to 
acquire them. In the meantime, the 
working classes are now part of the 
public; in all discussions on matters ot 
general interest they, or a portion of 
them, are now partakers ; all who use 
the press as an instrument may, if it 
so happens, have them for an audience; 
the avenues of instruction through 
which the middle classes acquire such 
ideas as they have, are accessible to, at 
least, the operatives in the towns. 
With these resources, it cannot be 
doubted that they will increase in in¬ 
telligence, even by their own unaided 
efforts; while there is reason to hope 
that great improvements both in the 
quality and quantity of school educa¬ 
tion will be effected by the exertions 






PROBABLE FUTURE OF THE LABOURING CLASSES. 450 


either of Government or of individuals, 
and that the progress of the mass of 
the people in mental cultivation, and 
in the virtues which are dependent on 
it, will take place more rapidly, and 
with fewer intermittences and aberra¬ 
tions, than if left to itself. 

From this increase of intelligence, 
several effects may be confidently an¬ 
ticipated. First: that they will become 
even less willing than at present to be 
led and governed, and directed into the 
way they should go, by the mere au¬ 
thority and prestige of superiors. If 
they have not now, still less will they 
have hereafter, any deferential awe, or 
religious principle of obedience, holding 
them in mental subjection to a class 
above them. The theory of dependence 
and protection will be more and more 
intolerable to them, and thev will re- 
quire that their conduct and condition 
shall be essentially self-governed. It 
is, at the same time, quite possible 
that they may demand, in many cases, 
the intervention of the legislature in 
their affairs, and the regulation bylaw 
of various things which concern them, 
often under very mistaken ideas of 
their interest. Still, it is their own 
will, their own ideas and suggestions, 
to which they will demand that effect 
should be given, and not rules laid 
down for them by other people. It is 
quite consistent with this, that they 
should feel respect for superiority of 
intellect and knowledge, and defer 
much to the opinions, on any subject, 
of those whom they think well ac¬ 
quainted with it Such deference is 
deeply grounded in human nature ; but 
they will judge for themselves of the 
persons who are and are not entitled 
to it. 

§ P). It appears to me impossible 
but that the increase of intelligence, of 
education, and of the love of indepen¬ 
dence among the working classes, 
must be attended with a corresponding 
growth of the good sense which mani¬ 
fests itself in provident habits of con¬ 
duct, and that population, therefore, 
will bear a gradually diminishing ratio 
to capital and employment. This most 
desirable result would be much accele¬ 


rated by another change, which lies in 
the direct line of the best tendencies of 
the time ; the opening of industrial 
occupations freely to both sexes. The 
same reasons which make it no longer 
necessary that the poor should depend 
on the rich, make it equally unneces¬ 
sary that women should depend on 
men, and the least which justice re¬ 
quires is that law and custom should 
not enforce dependence (when the cor¬ 
relative protection has become super¬ 
fluous) by ordaining that a woman, 
who does not happen to have a provi¬ 
sion by inheritance, shall have scarcely 
any means open to her of gaining a 
livelihood, except as a wife and mother. 
Let women who prefer that occupation, 
adopt it; but that there should be no 
option, no other career possible for 
the great majority of women, except in 
the humbler departments of life, is a 
flagrant social injustice. The ideas 
and institutions by which the accident 
of sex is made the groundwork of an 
inequality of legal rights and a forced 
dissimilarity of social functions, must 
ere long be recognised as the greatest 
hindrance to moral, social, and even 
intellectual improvement. On the 
present occasion I shall only indicate, 
among the probable consequences of 
the industrial and social independence 
of women, a great diminution of the 
evil of over-population. It is by devot¬ 
ing one-half of the human species to' 
that exclusive function, by making it 
fill the entire life of one sex, and inter¬ 
weave it_self wutli almost all the objects 
of the other, that the animal instinct 
in question is nursed into the dispro¬ 
portionate preponderance which it has 
hitherto exercised in human life. 

§ 4. The political consequences of 
the increasing power and importance 
of the operative classes, and of the 
growing ascendancy of numbers, which 
even in England and under the present 
institutions, is rapidly giving to the 
will of the majority at least a negative 
voice in the acts of government, are 
too wide a subject to be discussed in 
this place. But, confining ourselves to 
economical considerations, and notwith¬ 
standing the effect which improved 



BOOK IV. CHAPTER VII. § 4. 


460 

intelligence in the working classes, 
together with just laws, may have in 
altering the distribution of the produce 
to their advantage, I cannot think that 
they will be permanently contented 
with the condition of labouring for 
wages as their ultimate state. They 
may be willing to pass through the 
class of servants in their way to that 
of emplo}’ers; but not to remain in it 
all their lives. To begin as hired 
labourers, then after a few years to 
work on their own account, and finally 
employ others, is the normal condition 
of labourers in a new country, rapidly 
increasing in wealth and population, 
like America or Australia. But in an 
old and fully peopled country, those 
who begin life as labourers for hire, as 
a general rule, continue such to the 
end, unless they -sink into the still 
lower grade of recipients of public 
charity. In the present stage of human 
progress, when ideas of equality are 
daily spreading more widely among 
the poorer classes, and can no longer 
be checked by anything short of the 
entire suppression of printed discussion 
and even of freedom of speech, it is not 
to be expected that the division of the 
human race into two hereditary classes, 
employers and employed, can be per¬ 
manently maintained. The relation is 
nearly as unsatisfactory to the payer 
of wages as to the receiver. If the rich 
regard the poor as, by a kind of natural 
law, their servants and dependents, the 
rich in their turn are regarded as a 
mere prey and pasture for the poor; 
the subject of demands and expecta¬ 
tions wholly indefinite, increasing in 
extent with every concession made to 
them. The total absence of regard for 
justice or fairness in the relations be¬ 
tween the two, is as marked on the side 
of the employed as on that of the em¬ 
ployers. We look in vain among the 
working classes in general for the just 
pride which will choose to give good 
work for good wages: for the most 
part, their sole endeavour is to receive 
. as much, and return as little in the 
shape of service, as possible. It will 
sooner or later become insupportable 
to the employing classes to live in close 
and hourly contact wi th persons whose 


interests and feelings are in hostility 
to them. Capitalists are almost as 
much interested as labourers, in placing 
the operations of industry on such a 
footing, that those who labour for them 
may feel the same interest in the work, 
which is felt by those who labour on 
their own account. 

The opinion expressed in a former 
part of this treatise respecting small 
landed properties and peasant proprie¬ 
tors, may have made the reader anti¬ 
cipate that a wide diffusion of property 
in land is the resource on which I rely 
for exempting at least the agricultural 
labourers from exclusive dependence 
on labour for hire. Such, however, is 
not my opinion. I indeed deem that 
form of agricultural economy to be most 
groundlessly cried down, and to be 
greatly preferable, in its aggregate 
effects on human happiness, to hired 
labour in any form in which it exists at 
present; because the prudential check 
to population acts more directly, and is 
shown by experience to be more effica¬ 
cious; and because, in point of security, 
of independence, of exercise for any 
other than the animal faculties, the 
state of a peasant proprietor is far 
superior to that of an agricultural la¬ 
bourer in this or in any other old coun¬ 
try. Where the former system already 
exists, and works on the whole satis¬ 
factorily, I should regret, in the present 
state of human intelligence, to see it 
abolished in order to make way for the 
other, under a pedantic notion of agri¬ 
cultural improvement as a thing neces¬ 
sarily the same in every diversity of 
circumstances. In a backward state 
of industrial improvement, as in Ire¬ 
land, I should urge its introduction, in 
preference to an exclusive system of 
hired labour; as a more powerful in¬ 
strument for raising a population from 
semi-savage listlessness and reckless¬ 
ness, to persevering industry and pru¬ 
dent calculation. 

But a people who have once adopted 
the large system of production, either 
in manufactures or in agriculture, are 
not likely to recede from it; and when 
population is kept in due proportion to 
the means of support, it is not desir¬ 
able that they should. Labour is un- 



PROBABLE FUTURE OF THE LABOURING CLASSES. 461 


questionably more productive on tlie 
system of large industrial enterprises ; 
the produce, if not greater absolutely, 
is greater in proportion to the labour 
employed : the same number of persons 
can be supported equally well with less 
toil and greater leisure ; which will be 
wholly an advantage, as soon as civili 
zation and improvement have so far 
advanced, that what is a benefit to the 
whole shall be a benefit to each indi¬ 
vidual composing it. And in the moral 
aspect of the question, which is still more 
important than the economical, some¬ 
thing better should be aimed at as the 
goal of industrial improvement, than 
to disperse mankind over the earth in 
single families, each ruled internally, 
as families now are, by a patriarchal 
despot, and having scarcely any com¬ 
munity of interest, or necessary mental 
communion, with other human beings. 
The domination of the head of the 
family over the other members, in this 
state of things, is absolute; while the 
effect on his own mind tends towards 
concentration of all interests in the 
family, considered as an expansion of 
self, and absorption of all passions in 
that of exclusive possession, of all cares 
in those of preservation and acquisition. 
As a step out of the merely animal 
state into the human, out of reckless 
abandonment to brute instincts into 
prudential foresight and self-govern¬ 
ment, this moral condition may be seen 
without displeasure. But if public 
spirit, generous sentiments, or true jus¬ 
tice and equality are desired, associa¬ 
tion, not isolation, of interests, is the 
school in which these excellences are 
nurtured. The aim of improvement 
should be not solely to place human 
beings in a condition in which they will 
be able to do without one another, but 
to enable them to work with or for one 
another in relations not involving de¬ 
pendence. Hitherto there has been no 
alternative for those who lived by their 
labour, but that of labouring either 
each for himself alone, or for a master. 
But the civilizing and improving in¬ 
fluences of association, and the effi¬ 
ciency and economy of production on a 
large scale, may be obtained without 
dividing the producers into two parties 


with hostile interests and feelings, the 
many who do the work being mere 
servants under the command of "the one 
who supplies the funds, and having no 
interest of their own in the enterprise 
except to earn their wages with as 
little labour as possible. The specula¬ 
tions and discussions of the last fifty 
years, and the events of the last twenty, 
are abundantly conclusive on this point. 
If the improvement which even tri¬ 
umphant military despotism has only 
retarded, not stopped, shall continue 
its course, there can be little doubt that 
the status of hired labourers will gra¬ 
dually tend to confine itself to the de¬ 
scription of workpeople whose low 
moral qualities render them unfit for 
anything more independent: and that 
the relation of masters and workpeople 
will be gradually superseded by part¬ 
nership, in one of two forms : in some 
cases, association of the labourers with 
the capitalist; in others, and perhaps 
finally in all, association of labourers 
among themselves. 

§ 5. The first of these forms' of 
association has long been practised, 
not indeed as a rule, but as an excep¬ 
tion. In several departments of indus¬ 
try there are already cases in which 
every one who contributes to the work, 
either by labour or by pecuniary re¬ 
sources, has a partner's interest in it, 
proportional to the value of his contri¬ 
bution. It is already a common prac¬ 
tice to remunerate those in whom pe¬ 
culiar trust is reposed, by means of a 
percentage on the profits : and cases 
exist in which the pi-inciple is, with 
excellent success, carried down to the 
class of mere manual labourers. 

In the American ships trading to 
China, it has long been the custom for 
every sailor to have an interest in the 
profits of the voyage; and to this has 
been ascribed the general good conduct 
of those seamen, and the extreme rarity 
of any collision between them and the 
government or people of the country. 
An instance in England, not so well 
known as it deserves to be, is that of 
the Cornish miners. In Cornwall the 
mines are worked strictly on the sys¬ 
tem of joint adventure; gangs of miners 



BOOK IV. CHAPTER VII. § 5. 


162 

contracting with the agent, who repre¬ 
sents the owner of the mine, to execute 
a certain portion of a vein, and fit the 
ore for market, at the price of so much 
in the pound of the sum for which the 
ore is sold. These contracts are put 
up at certain regular periods, generally 
every two months, and taken by a vo¬ 
luntary partnership of men accustomed 
to the mine. This system has its dis¬ 
advantages, in consequence of the un¬ 
certainty and irregularity of the earn¬ 
ings, and consequent necessity of living 
for long periods on credit; but it has 
advantages which more than counter¬ 
balance these drawbacks. It produces 
a degree of intelligence, independence, 
and moral elevation, which raise the 
condition and character of the Cornish 
miner far above that of the generality 
of the labouring class. We are told by 
Dr. Barham, that * they are not only, 
as a class, intelligent for labourers, but 
men of considerable knowledge.’ Also, 
that ‘ they have a character of indepen¬ 
dence, something American, the sys¬ 
tem by which the contracts are let 
giving the takers entire freedom to 
make arrangements among themselves; 
so that each man feels, as a partner in 
his little firm, that he meets his em¬ 
ployers on nearly equal terms.’ . . . 

With this basis of intelligence and in¬ 
dependence in their character, we are 
not surprised when we hear that ‘ a 
very great number of miners are now 
located on possessions of their own, 
leased for three lives or ninety-nine 
years, on which they have built houses;’ 
or that * 281,541 Z. are deposited in sav¬ 
ings banks in Cornwall, of which two- 
thirds are estimated to belong to 
miners.’ 

Mr. Babbage, who also gives an ac¬ 
count of this system, observes that the 
payment to the crews of whaling ships 
is governed by a similar principle ; and 
that “ the profits arising from fishing 
with nets on the south coast of Eng¬ 
land are thus divided : one-half the pro¬ 
duce belongs to the owner of the boat 

* This passage is from the Prize Essay on 
the Causes and Remedies of National Dis¬ 
tress, by Mr. Samuel Laing. The extracts 
which it includes are from the Appendix to 
the Report of the Children’s Employment 
Commission. 


and net; the other half is divided in 
equal portions between the persons 
tising it, who are also bound to assist 
in repairing the net when required.’’ 
Mr. Babbage has the great merit of 
having pointed out the practicability, 
and the advantage, of extending the 
principle to manufacturing industry 
generally.* 

Some attention has been excited by 
an experiment of this nature, com¬ 
menced about sixteen years ago by a 
Paris tradesman, a house-painter, M. 
Leclaire,+ and described by him in a 
pamphlet published in the year 1842. 
M. Leclaire, according to his state¬ 
ment, employs on an average two hun¬ 
dred workmen, whom he pays in the 
usual manner, by fixed wages or 
salaries. He assigns to himself, besides 
interest for his capital, a fixed allow¬ 
ance for his labour and responsibility 
as manager. At the end of the year, 
the surplus profits are divided among 
the body, himself included, in the pro¬ 
portion of their salaries .$ The reasons 
by which M. Leclaire was led to adopt 
this system are highly instructive. 
Finding the conduct of his workmen 
unsatisfactory, he first tried the effect 
of giving higher wages, and by this he 
managed to obtain a body of excellent 
workmen, who would not quit his 
service for any other. “ Having thus 
succeeded” (I quote from an abstract 
of the pamphlet in Chambers’ Journal, §) 
“ in producing some sort of stability in 
the arrangements of his establishment, 
M. Leclaire expected, he says, to enjoy 
greater peace of mind. In this, how¬ 
ever, he was disappointed. So long as 
he was able to superintend everything 

* Economy of Machinery and Manufac¬ 
tures, 3rd edition, ch. 26. 

t His establishment is 11, Rue Saint 
Georges. 

t It appears, however, that the workmen 
whom M. Leclaire had admitted to this par¬ 
ticipation of profits, were only a portion 
(rather less than half) of the whole number 
whom he employed. This is explained by 
another part of his system. M. Leclaire 
pays the full market rate of wages to all his 
workmen. The share of profit assigned to 
them is, therefore, a clear addition to the 
ordinary gains of their class, which he very 
laudably uses as an instrument of improve¬ 
ment, by making it the reward of desert, or 
the recompense for peculiar trust. 

§ For September 27, 1845. 



PROBABLE FUTURE OF THE LABOURING CLASSES. 463 


himself, from the general concerns of 
his business down to its minutest de¬ 
tails, he did enjoy a certain satisfac¬ 
tion ; but from the moment that, owing 
to the increase of his business, he 
found that he could be nothing more 
than the centre from which orders 
were issued, and to which reports were 
brought in, his former anxiety and 
discomfort returned upon him.’’ He 
speaks lightly of the other sources of 
anxiety to which a tradesman is 
subject, but describes as aD incessant 
cause of vexation the losses arising 
from the misconduct of workmen. An 
employer “ wall find workmen whose 
indifference to his interests is such 
that they do not perform two-thirds of 
the amount of work which they are 
capable of; hence the continual fretting 
of masters, who, seeing their interests 
neglected, believe themselves entitled 
to suppose that workmen are con¬ 
stantly conspiring to ruin those from 
whom they derive their livelihood. If 
the journeyman were sure of constant 
employment, his position would in some 
respects be more enviable than that of 
the master, because he is assured of a 
certain amount of day’s wages, which 
he will get whether he works much or 
little. He runs no risk, and has no 
other motive to stimulate him to do his 
best than his own sense of duty. The 
master, on the other hand, depends 
greatly on chance for his returns: his 
position is one of continual irritation 
and anxiety. This would no longer be 
the case to the same extent, it the 
interests of the master and those of the 
workmen were bound up with each 
other, connected by some bond of 
mutual security, such as that which 
would be obtained by the plan of a 
yearly division of profits.” 

Even in the first year during which 
M. Leclaire’s experiment was in com¬ 
plete operation, the success was re¬ 
markable. Not one of his journeymen 
who worked as many as three hundred 
days, earned in that year less than 
1500 francs, and some considerably 
more. His highest rate of daily wages 
being four francs, or 1200 francs for 
300 days, the remaining 300 francs, 
or 12/., must have been the smallest 


amount which any journeyman who 
worked that number of days, obtained 
as his proportion of the surplus profit. 
M. Leclaire describes in strong terms 
the improvement which was already 
manifest in the habits and demeanour 
of his workmen, not merely when at 
work, and in their relations with their 
employer, but at other times and in 
other relations, showing increased re¬ 
spect both for others and for themselves. 
M. Chevalier, in a work published in 
1848,* stated on M. Leclame’s autho¬ 
rity, that the increased zeal of the 
workpeople continued to be a full com¬ 
pensation to him, even in a pecuniary 
sense, for the share of profit which 
he renounced in their favour. And 
M. Villiaume, in 1857,f observes: — 
“ Though he has always kept himself 
free from the frauds which are but too 
frequent in his profession, he has always 
been able to hold his ground against 
competition, and has acquired a hand¬ 
some competency, in spite of the re¬ 
linquishment of so great a portion of 
his profits. Assuredly he lias only been 
thus successful because the unusual 
activity of his workpeople, and the 
watch which they kept over one an 
other, have compensated him for the 
sacrifice he made in contenting himself 
with only a share of the gain.”4l 

* Letters on the Organization of Labour, 
letter 14. 

t New Treatise on Political Economy. 

j At the present time (1865), M. Leclaire’s 
establishment is conducted on a somewhat 
altered system, though the principle of 
dividing the profits is maintained. There 
are now three partners in the concern: 
M. Leclaire himself, one other person (M. 
Defournaux), and a Provident Society 
(Societe de Secours Mutuels), of which all 
persons in his employment are the members. 
(This Society owns an excellent library, and 
has scientific, technical, and other lectures 
regularly delivered to it). Each of the three 
partners has 100,000 francs invested in the 
concern; M. Leclaire having advanced to 
the Provident Society as much as was neces¬ 
sary to supply the original insufficiency of 
their own funds. The partnership, on the 
part of the Society, is limited; on that of 
M. Leclaire and M. Defournaux, unlimited. 
These two receive 6000 francs (240 1.) per 
annum each as wages of superintendence. 
Of the annual profits they receive half, 
though owning two-thirds of the capital. 
The remaining half belongs to the employes 
and workpeople; two-fifths of it being paid 
to the Provident Society, and the other 





BOOK IV. CHAPTER VII. § 5. 


464 

The beneficent example set by M. 
Leclaire has been followed, with bril¬ 
liant success, by other employers of 
labour on a large scale at Paris; and 
I annex, from the work last referred to 
(one of the ablest of the many able 
treatises on political economy produced 
by the present generation of the po¬ 
litical economists of France), some 
signal examples of the economical 
and moral benefit arising from this 
admirable arrangement.* 

three-fifths divided among the body. M. 
Leclaire, however, now reserves to himself 
the right of deciding who shall share in the 
distribution, and to what amount; only 
binding himself never to retain any part, but 
to bestow whatever has not been awarded to 
individuals, on the Provident Society. It is 
further provided that in case of the retire¬ 
ment of both the private partners, the good¬ 
will and plant shall become, without pay¬ 
ment, the property of the Society. 

* “In March 1847, M. Paul Dupont, the 
head of a Paris printing-office, had the idea 
of taking his workmen into partnership by 
assigning to them a tenth of the profits. He 
habitually employs three hundred; two 
hundred of them on piece work, and a 
hundred by the day. He also employs a 
hundred extra hands, who are not included 
in the association. The portion of profit 
which falls to the workmen does not bring 
them in, on the average, more than the 
amount of a fortnight’s wages ; but they re¬ 
ceive their ordinary pay according to the 
rates established in all the great Paris print¬ 
ing offices ; and have, besides, the advantage 
of medical attendance in illness at the ex¬ 
pense of the association, and a franc and a 
half per day while incapacitated for work. 
The workmen cannot draw out their share 
of profit except on quitting the association. 
It is left at interest, (sometimes invested in 
the public funds) and forms an accumulating 
reserve of savings for its owners. 

“ M. Dupont and his partners find this as¬ 
sociation a source of great additional profit 
to them: the workmen, on their side, con¬ 
gratulate themselves daily on the happy idea 
of their employer. Several of them have by 
their exertions caused the establishment to 
gain a gold medal in 1849, and an honorary 
medal at the Universal Exhibition of 1855 : 
some even have personally received the re¬ 
compense of their inventions and of their 
labours. Under an ordinary employer, these 
excellent people would not have had leisure 
to prosecute their inventions, unless by leav¬ 
ing the whole honour to one who was not the 
author of them : but, associated as they were, 
if the employer had been unjust, two hun¬ 
dred men would have obliged him to repair 
the wrong. 

“I have visited this establishment, and 
have been able to see for myself the improve¬ 
ment which the partnership produces in the 
habits of the workpeople. 


Until the passing of the Limited 
Liability Act, it was held that an 
arrangement similar to M. Leclaire’s 
would have been impossible in England, 
as the workmen could not, in the 
previous state of the law, have been 
associated in the profits without being 
liable for losses. One of the many 
benefits of that great legislative im¬ 
provement, has been to render partner¬ 
ships of this description possible : and 
we may now hope to see them carried 

“ M. Gisquet, formerly Prefect of Police, 
has long been the proprietor of an oil manu¬ 
factory at St. Denis, the most important one 
in France next to that of M. Darbiay, of Cor- 
beil. When in 1848 he took the personal 
management of it, he found workmen who 
got drunk several days in the week, and 
during their work sung, 3moked, and some¬ 
times quarrelled with one another. Many 
unsuccessful attempts had been made to alter 
this state of things: he accomplished it by 
forbidding his workmen to get drunk on 
working days, on pain of dismissal, and at 
the same time promising to share with them, 
by way of annual gratuity, five per cent of 
his net profits, in shares proportioned to 
wages, which are fixed at the current rates. 
From that time the reformation has been 
complete, and he is surrounded by a hundred 
workmen full of zeal and devotion. Their 
comforts have been increased by what they 
have ceased to spend in drink, and what they 
gain by their punctuality at work. The an¬ 
nual gratuity has amounted, on the average, 
to the equivalent of six weeks’ wages. 

“ M. Beslay, a member of the Chamber of 
Deputies from 1830 to 1839, and afterwards 
of the Constituent Assembly, has founded an 
important manufactory of steam engines at 
Paris, in the Faubourg of the Temple. He 
has taken his workpeople into partnership 
ever since the beginning of 1847, and the con¬ 
tract of association is one of the most com¬ 
plete which have been made between em¬ 
ployers and workpeople.” 

The practical sagacity of Chinese emi¬ 
grants long ago suggested to them, according 
to the report of a recent visitor to Manilla, a 
similar constitution of the relation between 
an employer and labourers. “ In these 
Chinese shops” (at Manilla) “the owner 
usually engages all the activity of his country¬ 
men employed by him in them, by giving 
each of them a share in the profits of the con¬ 
cern, or in fact by making them all small 
partners in the business, of which he of 
course takes care to retain the lion’s share, 
so that while doing good for him by managing 
it well, they are also benefiting themselves. 
To such an extent is this principle carried, 
that it is usual to give even their coolies a 
share in the profits of the business in lieu of 
fixed wages, and the plan appears to suit 
their temper well; for although they are in 
general most complete eye-servants when 
working for a fixed wage, they are found to 




PROBABLE FUTURE OF THE LABOURING CLASSES. 465 


.'into practice. Messrs. Briggs, of the 
Wliitwood and Methley Collieries, near 
Normanton in Yorkshire, have taken 
the first step. They have issued a 
proposal to work those collieries by a 

• company, two-thirds of the capital of 
which they will themselves continue to 
hold, but will in the allotment of the 
remaining third give the preference to 
the “ officials and operatives employed 
in the concern,” and, what is of still 
greater importance, will propose to the 
shareholders that whenever the annual 
profit exceeds 10 per cent, one-half the 
excess shall be divided among the 
workpeople and employes, whether 
shareholders or not, in proportion to 
their earnings during the year. It is 
highly honourable to these important 
employers of labour to have initiated a 
system so full of benefit both to the 
operatives employed and to the general 
interest of social improvement; and 
they express no more than a just con¬ 
fidence in the principle when they say, 
that “ the adoption of the mode of ap¬ 
propriation thus recommended would, 
it is believed, add so great an element 
of success to the undertaking as to 
increase rather than diminish the divi¬ 
dend to the shareholders.” 

§ 6. The form of association, how¬ 
ever, which if mankind continue to 
improve, must be expected in the end 
to predominate, is not that which can 
exist between a capitalist as chief, 
and workpeople without a voice in the 
management, but the association of 
the labourers themselves on terms of 
equality, collectively owning the capital 
with which they carry on their opera¬ 
tions, and working under managers 

• elected and removable by themselves. 
So long as this idea remained in a 
state of theory, in the writings of Owen 
or of Louis Blanc, it may have ap¬ 
peared, to the common modes of judg¬ 
ment, incapable of being realized, and 
not likely to be tried unless by seizing 
on the existing capital, and confiscat- 

be most industrious and useful ones when 
interested even for the smallest share.”— 
JHcMicking's Recollections of Manilla and the 
■Philippines during 1848, 1841>, and 1850, 

p. 24. 

F.E. 


ing it for the benefit of the labourers; 
which is even now imagined by many 
persons, and pretended by more, both 
in England and on the Continent, to 
be the meaning and purpose of Social¬ 
ism. But there is a capacity of exertion 
and self-denial in the masses of man¬ 
kind, which is never known but on the 
rare occasions on which it is appealed 
to in the name of some great idea or 
elevated sentiment. Such an appeal 
was made by the French Revolution of 
1848. For the first time it then seemed 
to the intelligent and generous of the 
working classes of a great nation, that 
they had obtained a government who 
sincerely desired the freedom and dig¬ 
nity of the many, and who did not 
look upon it as their natural and legiti¬ 
mate state to be instruments of pro¬ 
duction, worked for the benefit of the 
possessors of capital. Under this en¬ 
couragement, the ideas sown by So¬ 
cialist writers, of an emancipation of 
labour to be effected by means of 
association, throve and fructified; and 
many working people came to the re¬ 
solution, not only that they would 
work for one another, instead of 
working for a master tradesman or 
manufacturer, but that they would 
also free themselves, at whatever cost 
of labour or privation, from the ne¬ 
cessity of paying, out of the pro¬ 
duce of their industry, a heavy tribute 
for the use of capital; that the)’' would 
extinguish this tax, not by robbing the 
capitalists of what they or their pre¬ 
decessors had acquired by labour and 
preserved by economy, but by honestly 
acquiring capital for themselves. If 
only a few operatives had attempted 
this arduous task, or if, while many 
attempted it, a few only had succeeded, 
their success might have been deemed 
to furnish no argument for their sys¬ 
tem as a permanent mode of industrial 
organization. But, excluding all the 
instances of failure, there exist or ex¬ 
isted a short time ago, upwards of a 
hundred successful, and manv emi- 
nently prosperous, associations of ope¬ 
ratives in Baris alone, besides a con¬ 
siderable number in the departments. 
An instructive sketch of their history 
and principles has been published, 

H II 




466 BOOK IV. CHAPTER VII. 

under the title of “ Association of \ able history 
'Workpeople Manufacturing and Agri¬ 
cultural,” by II. Fcugueray: and as it 
is frequently affirmed in English news¬ 
papers that the associations at Paris 
have failed, by writers who appear to 
mistake the predictions of their enemies 
at their first formation for the testi- 


6 . 


monies of subsequent experience, I 
think it important to show by quota¬ 
tions from M. Feugucray’s volume, 
strengthened by still later testimonies, 
that these representations are not only 
wide of the truth, but the extreme con¬ 
trary of it. 

The capital of most of the associa¬ 
tions was originally confined to the few 
tools belonging to the founders, and 
the small sums which could be col¬ 
lected from their savings, or which 
were lent to them by other workpeople 
as poor as themselves. In some cases, 
however, loans of capital were made to 
them by the republican government: 
but the associations which obtained 
these advances, or at least which ob¬ 
tained them before they had already 
achieved success, are, it appears, in 
general by no means the most pros¬ 
perous. The most striking instances 
of prosperity are in the case of those 
who have had nothing to rely on but 
their own slender means and the small 
loans of fellow-workmen, and who lived 
on bread and water while they devoted 
the whole surplus of their gains to the 
formation of a capital. “ Often,” says 
M. Fcugueray,* “ there was no money 
at all in hand, and no wages could be 
paid. The goods did not go off, the 
payments did not come in, bills could 
not get discounted, the warehouse of 
materials was empty ; they had to sub¬ 
mit to privation, to reduce all expenses 
to the minimum, to live sometimes on 
bread and water. . . . It is at the price 
of these hardships and anxieties that 
men who began with hardly any re¬ 
source but their good will and their 
hands, succeeded in creating customers, 
in acquiring credit, forming at last a 
joint capital, and thus founding asso¬ 
ciations whose futurity now seems to 
be assured.” 

1 will quote at length the remark. 

*P. 112.” 


of one of these associa¬ 
tions.* 

“ The necessity of a large capital 
for the establishment of a pianoforte 
manufactory was so fully recognised 
in the trade, that in 1848 the delegales 
of several hundred workmen who had 
combined to form a great association, 
solicited from the government a subven¬ 
tion of 300,000 francs [12,000/.], being 
a tenth part of the whole sum voted by 
the National Assembly. I remember 
that as one of the Commission charged 
with the distribution of the fund, I 
tried in vain for two hours to convince 
the two delegates with whom the 
Commission conferred, that their, re¬ 
quest was exorbitant. They answered 
imperturbably, that their trade was a 
peculiar one; that the association could 
only have a chance of success on a very 
large scale and with a considerable 
capital; that 300,000 francs were the 
smallest sum which could suffice them, 
and that they could not reduce the de¬ 
mand by a single sou. The Commis¬ 
sion refused. 

“Now, after this refusal, the project 
of a great association being abandoned, 
what happened was this. Fourteen 
workmen, and it is singular that among 
them was one of the two delegates, re¬ 
solved to set up by themselves a piano¬ 
forte-making association. The project 
was hazardous on the part of men who 
bad neither money nor credit : but 
faith does not reason—it acts. 

“ Our fourteen men therefore went to> 
work, and I borrow from an excellent 
article by M. Cocliut in the National,. 
the accuracy of which I can attest, 
the following account of their first pro¬ 
ceedings. 

“ Some of them, who had worked on 
their own account, brought with them 
in tools and materials the value of about 
2000 francs [80/.]. There was needed 
besides a circulating capital. Each 
member, not without difficulty, ma¬ 
naged to subscribe 10 francs [8s.]. A. 
certain number of workmen not in¬ 
terested in the society gave their ad¬ 
hesion by bringing small contributions. 
On March 10, 1849, a sum of 2294 
francs [9/. 3s. 7 M/. | having been real- 
* Pp. 113-16. ' 






PROBABLE FUTURE OF THE LABOURING CLASSES. 467 


ized, the association was declared con¬ 
stituted. 

“ This sum was not even sufficient 
for setting up, and for the small ex¬ 
penses required from day to day for the 
service of a workshop. There being 
nothing left fur wages, nearly two 
months elapsed without their touching 
a farthing. How did they subsist during 
this interval? As workmen live when 
out of employment, by sharing the por¬ 
tion of a comrade who is in work ; by 
selling or pawning bit by bit the few’ 
articles they possess. 

“They had executed some orders. 
They received the payment on the 4th 
of May. That day was for them like 
a victory at the opening of a campaign, 
and they determined to celebrate it. 
After paying all debts that had fallen 
due, the dividend of each member 
amounted to 6 francs 61 centimes. 
They agreed to allow to each 5 francs 
[4s. ] on account of his wages, and to 
devote the surplus to a fraternal repast. 
The fourteen shareholders, most of 
whom had not tasted wine for a year 
past, met. along with their wives and 
children. They expended 32 sous 
[Is. Ad.] per family. This day is still 
spoken ot in their workshops with an 
emotion which it is difficult not to 
share. 

“ For a month longer it was neces¬ 
sary to content themselves with the re¬ 
ceipt of tive francs per week. In the 
course of June a baker, either from 
love of music or on speculation, offered 
to buy a piano, paying for it in bread. 
The bargain w r as made at the price of 
480 francs. It was a piece of good 
luck to the association. They had 
now' at least what was indispensable. 
They determined not to reckon the 
bread in the account of wages. Each 
ate according to his appetite, or rather 
to that of his family ; for the married 


pianos had made in the estimation of 
buyers. From August 1840 the 
weekly contingent rises to 10, 15, and 
20 francs per week ; and this last sum 
does not represent all their profits, each 
partner having left in the common 
stock much more than he received from 
it. Indeed it is not by the sum which 
tho member receives w r eekly that his 
situation can be judged, but by the 
share acquired in the ownership of a 
property already considerable. The 
following was the position of the as¬ 
sociation when it took stock on the 
30th December 1850. 

“ At this period the number of share 
holders was thirty-two. Large work 
shops and warehouses, rented for 2000 
francs, were no longer sufficient for the 
business. 


Frs. Cents. 


Independent of tools, valued at 
They possessed in goods and 
especially in materials, the 

5,922 

60 

value of. 

22,972 

28 

They had in cash. 

„ in bills. 

1,021 

3,540 

10 

There was due to them* . . 

5,861 

90 

They had thus to their credit 

39,317 

83 


Against this are only to be de¬ 
bited 4737 francs 86 centimes 
due to creditors, and 1650 
francs to eighty adherents;! 
in all. 6,337 at! 


Remaining .... 32,030 02 
[>'1319 4s.] 

which formed their indivisible capital 
and the reserve of the individual mem¬ 
bers. At this period the association 
bad 76 pianos under construction, and 
received more orders than they could 
execute.’’ 

From a later report we learn that this 
society subsequently divided itself into 
two separate associations, one of which, 
in 1854, already possessed a circulating 
capital of 56,000 francs| [2240k]. In 
1863 its total capital was 6520k 


shareholders were allowed to take away 
bread freely for their wives and 
children. 

“ Meanwhile the association, being 
composed of excellent workmen, gra¬ 
dually surmounted the obstacles and 
privations which had embarrassed its 
starting. Its account-books otter the 
best proof of the progress which its 


* “ The last t wo items consisted of safe 
securities, nearly all of which have since been 
realized. 1 ’ 

f “ These adherents are workmen of the 
trade, who subscribed small sums to the asso¬ 
ciation at its commencement: a portion of 
them were reimbursed in the beginning of 
1851. Tho sum due to creditors has also 
been much reduced : on the 23rd of April it. 
only amounted to 113 francs 59 centimes.’' 

1 Article by M. Cherouliez on “ Opera- 

H H 2 











468 BOOK IV. CHi 

The same admirable qualities by 
•which the associations were carried 
through their early struggles, main¬ 
tained them in their increasing pros¬ 
perity. Their rules of discipline, in¬ 
stead of being more lax, are stricter 
than those of ordinary workshops ; but 

tive Associations,” in the Journal des Econo¬ 
mist es for November 1860. 

I subjoin, from M. Villiaume and M. Cher- 
buliez, detailed particulars of other emi¬ 
nently successful experiments by associated 
workpeople. 

“We will first cite,” says M. Cherbuliez, 
“ as having attained its object and arrived at 
a definitive result, the Association Remquet, 
of the Rue Garanciere, at Paris, whose 
founder, in 1848, was a foreman in M. Re- 
nouard’s printing establishment. That firm 
being under the necessity of winding up, he 
proposed to his fellow-workmen to join wiili 
him in continuing theenterprise on their own 
account, asking a subvention from the go¬ 
vernment to cover the purchase-money of 
the business and the first expenses. Fifteen 
of them accepted the proposal, and formed 
an association, whose statutes fixed the wages 
for every kind of work, and provided for the 
gradual formation of a working capital by a 
deduction of 25 per cent from all wages and 
salaries, on which deduction no dividend or 
interest was to be allowed during the ten 
years that the association was intended to 
last. Remquet asked and obtained for him¬ 
self the entire direction of the enterprise, at 
a very moderate fixed salary. At the wind¬ 
ing up, the entire profits were to be divided 
among all the members, proportionally to 
their share in the capital, that is, to the work 
they had done. A subvention of 80,000 francs 
was granted by the State, not without great 
difficulty, and on very onerous conditions. 
In spite of these conditions, and of the un¬ 
favourable circumstances resulting from the 
political situation of the country, the asso¬ 
ciation prospered so well, that on the wind¬ 
ing up, after repaying the advance made by 
the State, it was in possession of a clear ca¬ 
pital of 155,000 francs [6200/.], the division of 
which gave on the average between ten and 
eleven francs to each partner; 7000 being 
the smallest and 18,000 the largest share. 

“The Fraternal Association of Working 
Tinmen and Lampmakers had been founded 
in March 1848 by 500 operatives, comprising 
nearly the whole body of the trade. This 
first attempt, inspired by unpractical ideas, 
not having survived the fatal days of June, a 
new association was formed of more modest 
proportions. Originally composed of forty 
members, it commenced business in 1S49 with 
a capital composed of the subscriptions of its 
members, without asking for a subvention. 
After various vicissitudes, which reduced the 
number of partners to three, then brought it 
back to fourteen, then again sunk it to three, 
it ended by keeping together forty-six mem¬ 
bers, who quietly remodelled their statutes 
in the points which experience had shown 


PTER VII. § 6. 

being rules self-imposed, for the mani¬ 
fest good of the community, and not 
for the convenience of an employer 
regarded as having an opposite interest, 
they are far more scrupulously obeyed, 
and the voluntary obedience carries 
with it a sense of personal worth and 

to be faulty, and their number having been 
raised by successive steps to 100, they pos¬ 
sessed, in 1858, a joint property of 50,000 
francs, and were in a condition to divide an¬ 
nually 20,000 francs. 

“The Association of Operative Jewellers, 
the oldest of all, had been founded in 1831 by 
eight workmen, with a capital of 200 francs 
[8/.] derived from their united savings. A 
subvention of 24,000 francs enabled them in 
1849 greatly to extend their operations, which 
in 1858 had already attained the value of 
140,000 francs, and gave to each partner an 
annual dividend equal to double his wages.” 
The following are from M. Villiaume :— 

“ After the insurrection of June 1848, work 
was suspended in the Faubourg St. Antoine, 
which, as we know, is principally occupied 
by furniture-makers. Some operative arm¬ 
chair makers made an appeal to those who 
might be willing to combine with them. Out 
of six or seven hundred composing the trade, 
four hundred gave in their names. But ca¬ 
pital being wanting, nine of the most zealous 
began the association with all that they pos¬ 
sessed ; being a value of 369 francs in tools, 
and 135 francs 20 centimes in money. 

“ Their good taste, honesty and punctuality 
having increased their business, they soon 
numbered 108 members. They received from 
the State an advance of 25.000 francs, reim¬ 
bursable in 14 years by way of annuity, with 
interest at 3| per cent. 

“ In 1857 the number of partners is 65, the 
auxiliaries average 100. All the partners 
vote at the election of a council of eight mem¬ 
bers, and a manager whose name represents 
the firm. The distribution and superinten¬ 
dence of all the works is entrusted to foremen 
chosen by the manager and council. There 
is a foreman to every 20 or 25 workmen. 

“ The payment is by the piece, at rates de¬ 
termined in general assembly. The earnings 
vary from 3 to 7 francs a dav, according to 
zeal and ability. The average is 50 francs 
[2/.] a fortnight, and no one gains much less 
than 40 trancs per fortnight, while many earn 
80. Some of the carvers and moulders make 
as much as 100 francs, being 200 francs [8/.] 
a month. Each binds himself to work 120 
hours per fortnight, equal to ten per day. 
By the regulations, every hour short of the 
number subjects the delinquent to a penalty 
of 10 centimes [one penny] per hour up to 
thirty hours, and 15 centimes [H</.] beyond. 
The object of this rule was to abolish Saint 
Monday, and it succeeded in its effort. For 
the last two years the conduct of the mem¬ 
bers has been so good, that fines have fallen 
into disuse. 

“ Though the partners started with only 
359 francs, the value of the plant (Rue de 






PROBABLE FUTURE OF THE LABOURING CLASSES. 469 


dignity. With wonderful rapidity the 
associated workpeople have learnt to 
correct those of the ideas they set out 
with, which are in opposition to the 
teaching of reason and experience. 
Almost all the associations, at first, ex¬ 
cluded piece-work, and gave equal 
wages whether the work done was more 

Chavonne, Cour St. Joseph, Faubourg St. 
Antoine) already in 1851 amounted to 5713 
francs, and the assets of the association, 
debts due to them included, to 24,000 francs. 
Since then the association has become still 
more flourishing, having resisted all the at¬ 
tempts made to impede its progress. It does 
the largest business, and is the most con¬ 
sidered, of all the bouses in Paris in the trade. 
Its business amounts to400,000 francs a year.” 
Its inventory in December 1855 showed, ac¬ 
cording to M. Villiaume, a balance of 100,398 
francs 90 centimes in favour of the associa¬ 
tion, but it possessed, he says, in reality, 
123,000 francs. 

But the most important association of all 
is that of the Masons. “ The Association of 
Masons was founded August 10th, 1848. Its 
address is Rue St. Victor, 155. Its number of 
members is 85, and its auxiliaries from three 
to four hundred. There are two managers, 
one for the building department, the other lor 
the pecuniary administration : these are re¬ 
garded as the ablest master-masons in Paris, 
and are content with a moderate salary. This 
association has lately constructed three or 
four of the most remarkable mansions in the 
metropolis. Though it does its work more 
economically than ordinary contractors, yet as 
it has to give long credits, it is called upon for 
considerable advances : it prospers, however, 
as is proved by the dividend of 56 per cent 
which has been paid this year on its capital, 
including in the payment those who have as¬ 
sociated themselves in its operations. It con¬ 
sists of workmen who bring only their labour, 
of others who bring their labour and a capital 
of some sort, and of a third class who do not 
work, but contribute capital only. 

“The masons, in the evening, carry on 
mutual instruction. They, as well as the 
arm-chair makers, give medical attendance 
at the expense of the association,and an allow¬ 
ance to its sick members. They extend their 
protection over every member in every action 
of his life. The arm-chair makers will soon 
each possess a capital of two or three thou¬ 
sand francs, with which to portion their 
daughters or commence a reserve for future 
years. Of the masons, some have already 
4000 francs, which are left in the common 
stock. 

“ Before they were associated, these work¬ 
men were poorly clad in jackets and blouses; 
because,for vvantof forethought,and still more 
from want of work, they had never 60 francs 
beforehand to buy an overcoat. Most of them 
are now as well dressed as shopkeepers, and 
sometimes more tastefully. For the work¬ 
man, having always a credit with the associa¬ 
tion, can get whatever he wants by signing an 


or less. Almost all have abandoned 
this system, and after allowing to every 
one a fixed minimum, sufficient for sub¬ 
sistence, they apportion all further re¬ 
muneration according to the work 
done: most of them even dividing the 
profits at the end of the year, in the 
same proportion as the earnings.* 

order; and the association reimburses itself 
by fortnightly stoppages, making him save as 
it were in spite of himself. Some workmen 
who are not in debt to the concern, sign 
orders payable to themselves at five months 
date, to resist the temptation of needless'ex- 
pense. They are put under stoppages of 10 
francs per fortnight, and thus at the end of 
five months they have saved the amount.” 

The following table, taken by M.Cherbuliez 
from a work by Professor Huber (one of the 
most ardent and high-principled apostles of 
this kind of co-operation) shows the rapidly 
progressive growth in prosperity of the 
Masons’ Association up to 1858: — 



Amount of 

Profits 

Year. 

business done. 

realized. 


francs. 

francs. 

1852 . 

. . . 45,530 ... 

1,000 

1853 . 

. . . 297,203 ... 

7,000 

1854 . 

. . . 344,240 ... 

20,000 

1855 . 

. . . 614,694 ... 

46,000 

1856 . 

. . . 998,240 ... 

80,000 

1857 . 

. . . 1,330,000 ... 

100,000 

1858 . 

. . . 1,231,461 ... 

130,000 

“ Of this last dividend,” says M. 

Cherbuliez, 


“ 30,000 francs were taken for the reserve 
fund, and the remaining 100,000, divided 
among the shareholders, gave to each from 
500 to 1500 francs, besides their wages or 
salaries, and their share in the fixed capital 
of the concern.” 

Of the management of the associations 
generally, M. Villiaume says, “ I have been 
able to satisfy myself personally of the ability 
of the managers and councils of the opera¬ 
tive associations. The managers are far su¬ 
perior in intelligence, in zeal, and even in 
politeness, to most of the private masters in 
their respective trades. And among the as¬ 
sociated workmen, the fatal habit of intem¬ 
perance is gradually disappearing, along with 
the coarseness and rudeness which are the 
consequence of the too imperfect education 
of the class.” 

* Even the association founded by M. 
Louis Blanc, that of the tailors of Clichy, 
after eighteen months trial of this system, 
adopted piece-work. One of the reasons 
given by them for abandoning the original 
system is w ell worth extracting. “ Besides 
the vices I have mentioned, the tailors com¬ 
plained that it caused incessant disputes and 
quarrels, through the interest which each had 
in making his neighbours work. Their mu¬ 
tual watchfulness degenerated into a real 
slavery; nobody had the free control of his 
time and his actions. These dissensions have 
disappeared since piece-work was intro¬ 
duced.”— Feugueray, p. 88. One of the most 










470 BOOK IV. CHAPTER VII. § 6. 


It is the declared principle of most 
of these associations, that they do not 
exist for the mere private benefit of the 
individual members, but for the pro¬ 
motion of the co-operative cause. With 
every extension, therefore, of their busi¬ 
ness, they take in additional members, 
not (when they remain faithful to their 
original plan) to receive wages from 
them as hired labourers, but to enter at 
once into the full benefits of the asso¬ 
ciation, without being required to bring 
anything in, except their labour: the 
only condition imposed is that of re¬ 
ceiving during a few years a smaller 
share in the annual division of profits, 
as some equivalent for the sacrifices of 
the founders. When members quit the 
association, which they are always at 
liberty to do, they carry none of the 
capital with them : it remains an indi¬ 
visible property, of which the members 
for the time being have the use, but 
not the arbitrary disposal: by the sti¬ 
pulations of most of the contracts, even 
if the association breaks up, the capital 
cannot be divided, but must be devoted 
entire to some work of beneficence or 
of public utility. A fixed, and gene¬ 
rally a considerable, proportion of the 
annual profits, is not shared among the 
members, but added to the capital of 
the association, or devoted to the re¬ 
payment of advances previously made 
to it: another portion is set aside to 
provide for the sick arid disabled, and 
another to form a fund for extending 
the practice of association, or aiding 
other associations in their need. The 
managers are paid, like other mem¬ 
bers, for the time which is occupied in 

discreditable indications of a low moral con¬ 
dition given of late by part of the English 
working classes, is the opposition to piece¬ 
work. When the payment per piece is not 
sufficiently high, that is a just ground of ob¬ 
jection. But dislike to piece-work in itself, 
except under mistaken notions, must be dis¬ 
like to justice and fairness; a desire to cheat, 
by not giving work in proportion to pay. 
Piece-work* is the perfection of contract; 
and contract, in all work, and in the most 
minute detail—the principle of so much pay 
for so much service, carried out to the utmost 
extremity—is the system, of all others, in the 
present state of society and degree of civiliza¬ 
tion, most favourable to the worker; though 
most unfavourable to the non-worker who 
wishes to be paid for being idle* 


management, usually at the rate rf 
the highest paid labour: but the rule is 
adhered to, that the exercise of power 
shall never be an occasion for profit. 

Of the ability of the associations to 
compete successfully with individual 
capitalists, even at an early period of 
their existence, M. Feugueray* said, 
“ The associations which have been 
founded in the last two years” (M. 
Fcugueray wrote in 1851) “had many 
obstacles to overcome; the majority of 
them were almost entirely without 
capital: all were treading in a path 
previously unexplored ; they ran the 
risks which always threaten innovators 
and beginners. Nevertheless, in many 
of the trades in which they have been 
established, they are already formidable 
competitors of the old bouses, and are 
even complained of on that account by 
a part of the bourgeoisie. This is not 
only true of the cooks, the lemonade 
sellers, and hairdressers, trades the 
nature of which enables the associa¬ 
tions to rely on democratic custom, but 
also in other trades where they have 
not the same advantages. One has 
only to consult the makers of chairs, of 
arm-chairs, of files, and one will learn 
from them if the most important esta¬ 
blishments in their respective trades are 
not those of the associated workmen.” 

The vitality of these associations 
must indeed be great, to have enabled 
about twenty of them to survive not 
only the anti-socialist reaction, which 
for the time discredited all attempts 
to enable workpeople to be their own 
employers—not only the tracasseries 
of the police, and the hostile policy of 
the government since the usurpation— 
hut in addition to these obstacles, all 
the difficulties arising from the trying 
condition of financial and commercial 
affairs from 1854 to 1858. Of the pros¬ 
perity attained by some of them even 
while passing through this difficult 
period, I have given examples which 
must be conclusive to all minds as to 
the brilliant future reserved for the 
principle of co operation.f 

* Pp. 37-8. 

t In the last year or two, the co-operative 
movement among the French working 
classes has taken a fresh start. An interest- 






PROBABLE FUTURE OF THE LABOURING CLASSES. 471 


It is not in France alone that these 
associations have commenced a career 
of prosperity. To say nothing at present 
of Germany, Piedmont, or Switzerland 
(where the Consumers’ Union of Zurich 
is one of the most prosperous co-opera¬ 
tive associations in Europe), England 
can produce cases of success, rivalling 
even those which I have cited from 
France. Under the impulse commenced 
by Mr. Owen, and more recently pro- 
pagated by the writings and personal 
efforts of a band of friends, chiefly 
clergymen and barristers, to whose 
noble exertions too much praise can 
scarcely be given, the good seed was 
widely sown ; the necessary alterations 
in the English law of partnership were 
obtained from Parliament, on the bene¬ 
volent and public-spirited initiative of 
Mr. Slaney; many industrial associa¬ 
tions, and a still greater number of 
co-operative stores for retail purchases, 
were founded. Among these are already 
many instances of remarkable pros¬ 
perity, the most signal of which are 
the Leeds Flour Mill, and the Rochdale 
Society ot Equitable Pioneers. Of this 
last association, the most successful of 
all, the history has been written in a 
very interesting manner by Mr. ILoly- 
oake ;* and the notoriety which by 

ing account of the Provision Association of 
Grenoble has been given in a pamphlet by 
M. Casimir Perier; and in the Times of 
November 24, 1864, we read the following 
passage : “ While a certain number of ope¬ 
ratives stand out for more wages or fewer 
hours of labour, others, who have also 
seceded, have associated for the purpose of 
carrying on their respective trades on their 
own account, and have collected funds for 
the purchase of instruments of labour. They 
have founded a society—Soeietc Generate 
d'Approvisionnement et de Consommation. 
It numbers between 300 and 400 members, 
who have already opened a “co-operative 
store” at Passy, which is now within the limits 
of Paris. They calculate that by May next 
fifteen new self-supporting associations of 
the same kind will be ready to commence 
operations; so that the number will be, for 
Paris alone, from 50 to 60. 

* Self-Help by the People—History of Co¬ 
operation in Rochdale. An instructive ac¬ 
count of this and other co-operative associa¬ 
tions has also been written in the Companion 
io the Almanack, for 1862, by Mr. John 
Plummer, of Kettering; himself one of the 
most inspiring examples of mental cultiva¬ 
tion and high principle in a self-instructed 
working man. 


this and other means lias been given 
to tacts so encouraging, is causing a 
rapid extension of associations with 
similar objects in Lancashire, York¬ 
shire, London, and elsewhere. 

The original capital of the Rochdale 
Society consisted of 28 1., brought to¬ 
gether by the unassisted economy of 
about forty labourers, through the slow 
process of a subscription of twopence 
(afterwards raised to threepence) per 
week. With this sum they established 
in 1844 a small shop, or store, for the 
supply of a few common articles for 
the consumption of their own fami¬ 
lies. As their carefulness and honesty 
brought them an increase of customers 
and of subscribers, they extended their 
operations to a greater number of arti¬ 
cles of consumption, and in a few years 
were able to make a large investment 
in shares of a Co-operative Corn Mill. 
Mr. Holyoake thus relates the stages 
of their progress up to 1857. 

“ The Equitable Pioneers’ Society is 
divided into seven departments: Gro¬ 
cery, Drapery, Butchering, Shoemaking, 
Clogging, Tailoring, Wholesale. 

A separate account is kept of each 
business, and a general account is given 
each quarter, showing the position of 
the whole. 

“ The grocery business was com¬ 
menced, as we have related, in De¬ 
cember 1844, with only four articles to 
sell. It now includes whatever a gro¬ 
cer’s shop should include. 

“ The drapery business was started 
in 1847, with an humble array of at¬ 
tractions. In 1854 it was erected into 
a separate department. 

“A year earlier, 1S46, the Store 
began to sell butcher’s meat, buying 
eighty or one hundred pounds of a 
tradesman in the town. After a while, 
the sales were discontinued until 1850, 
when the Society had a warehouse of 
its own. Mr. John Moorhouse, who 
has now two assistants, buys and kills 
for the Society three oxen, eight sheep, 
sundry porkers and calves, which are 
on the average converted into 130Z. of 
cash per week. 

“ Shoemaking commenced in 1852. 
Three men and an apprentice make, 
and a stock is kept on sale. 




BOOK IV. CHAPTER VII. § 6 . 


472 

“ Clogging and tailoring commenced 
also in this year. 

“ The wholesale department com¬ 
menced in 1852, and marks an im¬ 
portant development of the Pioneers’ 
proceedings. This department has been 
created for supplying any members re¬ 
quiring large quantities, and with a 
view to supply the co-operative stores 
of Lancashire and Yorkshire, whose 
small capitals do not enable them to 
buy in the best markets, nor command 
the services of what is otherwise indis¬ 
pensable to every store—a good buyer , 
who knows the markets and his busi¬ 
ness, who knows what, how, and where 
to buy. The wholesale department 
guarantees purity, quality, fair prices, 
standard weight and measure, but all 
on the never-failing principle, cash pay¬ 
ment.” 

In consequence of the number of 
members who now reside at a distance, 
and the difficulty of serving the great 
increase of customers, “Branch Stores 
have been opened. In 1856, the first 
Branch was opened, in the Oldham 
Road, about a mile from the cent*) 
of Rochdale. In 1857 the Castleton 
Branch, and another in the Whitworth 
Road, were established, and a fourth 
Branch in Pinfold.” 

The warehouse, of which the original 
Store was a single apartment, was 
taken on lease by the Society, very 
much out of repair, in 1849. “ Every 

part has undergone neat refitting and 
modest decoration, and now wears the 
air of a thoroughly respectable place 
of business. One room is now hand¬ 
somely fitted up as a newsroom. Another 

is neatly fitted up as a library. 

Their newsroom is as well supplied as 
that of a London club.” It is now 
“free to members, and supported from 
the Education Fund,” a fund con¬ 
sisting of 2i per cent of all the profits 
divided, which is set apart for educa¬ 
tional purposes. “ The Library con¬ 
tains 2200 volumes of the best, and 
among them, many of the most ex¬ 
pensive books published. The Library 
is free. From 1850 to 1855, a school 
for young persons was conducted at a 
charge of twopence per month. Since 
1855, a room has been granted by the 


Board for the use of from twenty to 
thirty persons, from the ages of four¬ 
teen to forty, for mutual instruction on 
Sundays and Tuesdays. . . . 

“ The corn-mill Avas of course rented, 
and stood at Small Bridge, some dis¬ 
tance from the town—one mile and a 
half. The Society have since built in 
the town an entirely new mill for them¬ 
selves. The engine and the machinery 
are of the most substantial and im¬ 
proved kind. The capital invested' 
in the corn-mill is 8450/., of which 
3731/. 15s. 2d. is subscribed by the 
Equitable Pioneers’ Society. The corn- 
mill employs eleven men.” 

At a later period they extended their 
operations to the staple manufacture- 
itself. From the success of the Pioneers’ 
Society grew not only the co-operative- 
corn-mill, but a co-operative associa¬ 
tion for cotton and woollen manufac¬ 
turing. “ The capital in this depart¬ 
ment is 4000/., of which sum 2042/. 
has been subscribed by the Equitable 
Pioneers’ Society. This Manufacturing 
Society has ninety-six power-looms at 
work, and employs twenty-six men, 
seven women, four boys, and five girls 
—in all forty-two persons.” 

“ In 1853 the Store purchased for 
745/. a warehouse (freehold) on the 
opposite side of the street, where they 
keep and retail their stores of Hour, 
butcher’s meat, potatoes, and kindred 
articles. Their committee-rooms and 
offices are fitted up in the same build¬ 
ing. They rent other houses adjoining 
for calico and hosiery and shoe stores. 
In their wilderness of rooms, the visitor 
stumbles upon shoemakers and tailors, 
at work under healthy conditions, and 
in perfect peace of mind as to the re¬ 
sult on Saturday night. Their ware¬ 
houses are everywhere as bountifully 
stocked as Noah’s Ark, and cheerful 
customers literally crowd Toad Lane 
at night, swarming like bees to every 
counter. The industrial districts of 
England have not such another sight 
as the Rochdale Co-operative Store on 
Saturday night.* Since the disgraceful 

* “ But it is not,” adds Mr. Holyoake, 
“ the brilliancy of commercial activity in 
which either writer or reader will take the 
deepest interest; it is in the new and im- 






PROBABLE FUTURE OF THE LABOURING CLASSES. 

failure of the Rochdale Savings Bank 
in 1849, the Society’s Store has become 
the virtual Savings Bank of the place. 

The following table, completed to 


473 

1860 from the Almanack published by 
the Society, shows the pecuniary result 
of its operations from the commence¬ 
ment. 


Year. 

No. of 
members. 

Amount of capital. 

Amount of cash sales 
in store (annual). 

Amount of profit 
(annual). 



£ 

s. 

d. 

£ 

s. 

d. 

£ 

s. 

d. 

1844 

28 

28 

0 

0 







1845 

74 

181 

12 

5 

710 

6 

5 

32 

17 

6 

1846 

86 

252 

7 

H 

1,146 

17 

7 

80 

16 

34 

1847 

110 

286 

5 

H 

1,924 

13 

10 

72 

2 

10 

1848 

140 

397 

0 

0 

2,276 

6 

54 

117 

16 

104 

1849 

390 

1,193 

19 

l 

6,611 

18 

0 

561 

3 

9 

1850 

600 

2,299 

10 

5 

13,179 

17 

0 

889 

12 

5 

1851 

630 

2,785 

0 

1* 

17,638 

4 

0 

990 

19 

84 

1852 

680 

3,471 

0 

6 

16,352 

5 

0 

1,206 

15 

24 

1853 

720 

5,848 

3 

11 

22,760 

0 

0 

1,674 

18 

114 

1854 

900 

7,172 

15 

7 

33,364 

0 

0 

1,763 

11 

H 

1855 

1400 

11,032 

12 

104 

44,4)02 

12 

0 

3,106 

8 

44 

1856 

1600 

12,920 

13 

H 

63,197 

10 

0 

3,921 

13 

H 

1857 

1850 

15,142 

1 

2 

79,788 

0 

0 

5,470 

6 

84 

1858 

1950 

18,160 


4 

71,689 

0 

0 

6,284 

17 

44 

1859 

2703 

27,060 

14 

2 

104,012 

0 

0 

10,739 

18 

64 

1860* 

3450 

37,710 

9 

0 

152,063 

0 

0 

15,906 

9 

11 


proved spirit animating this intercourse of 
trade. Buyer and seller meet as friends; 
there is no overreaching on one side, and no 

suspicion on the other.These crowds 

of humble working men, who never knew 
before when they put good food in their 
mouths, whose every dinner was adulterated, 
whose shoes let in the water a month too 
soon, whose waistcoats shone with devil’s 
dust, and whose wives wore calico that would 
not wash, now buy iu the markets like mil- 
lionnaires, and as far as pureness of food 
goes, live like lords.” Far better, probably, 
in that particular; for assuredly lords are 
not the customers least cheated, in the pre¬ 
sent race of dishonest competition. “ They 
are weaving their own stuffs, making their 
own shoes, sewing their own garments, and 
grinding their own corn. They buy the 
purest sugar and the best tea, and grind their 
own coffee. They slaughter their ow r n cattle, 
and the finest beasts of the land waddle down 
the streets of Rochdale for the consumption 
of flannel-weavers and cobblers. (Last year 
the Society advertised for a Provision Agent 
to make purchases in Ireland, and to devote 
his whole time to that duty.) When did 
competition give poor men these advantages P 
And will any man say that the moral cha¬ 
racter of these people is not improved under 
these influences ? The teetotallers of Roch¬ 
dale acknowledge that the Store has made 
more sober men since it commenced than all 
their efforts have been able to make in the 
same time. Husbands who never knew what 


it was to be out of debt, and poor wives who 
during forty years never had sixpence uncon¬ 
demned in their pockets, now possess little 
stores of money sufficient to build them cot¬ 
tages, and to go every week into their own 
market with money jingling in their pockets ; 
and in that market there is no distrust and no 
deception; there is no adulteration, and 
no second prices. The whole atmosphere 
is honest. Those who serve neither hurry, 
finesse, nor flatter. They have no interest in 
chicanery. They have but one duty to per¬ 
form—that of giving fair measure, full 
weight, and a pure article. In other parts 
of the town, where competition is the prin¬ 
ciple of trade, all the preaching in Roch¬ 
dale cannot produce moral effects like 
these. 

“ As the Store has made no debts, it has 
incurred no losses; and during thirteen 
years’ transactions, and receipts amounting 
to 303,8525, it has had no law-suits. The 
Arbitrators of the Societies, during all their 
years of office, have never had a case to 
decide, and are discontented that nobody 
quarrels.” 

* The latest report to which I have access 
is that for the quarter ending Sept. 20, 1864, 
of which I take the following abstract from 
the November number of that valuable pe¬ 
riodical the Co-operator, conducted by Mr. 
Henry Pitman, one of the most active and 
judicious apostles of the Co-operative cause. 
** The number of members is 4580, being 
an increase of 132 for the three months« 



















474 BOOK TV. CHAPTER VII. S 6. 


I need not enter into similar parti¬ 
culars respecting the Corn-Mill Society, 
and will merely state that in 1860 its 
capital is set down, on the same autho¬ 
rity, at 20,618^. 14.s. Qd., and the profit 
for that single year at 10,164?. 12s. 5d. 
For the manufacturing establishment I 
have no certified information later than 
that of Mr. Ilolyoake, who states the 
capital of the concern, in 1857, to be 
5500?. But a letter in the Rochdale 
Observer of May 26, 1860, editorially 
announced as by a person of good in¬ 
formation, says that the capital had at 
that time reached 50,000?.: and the 
same letter gives highly satisfactory 
statements respecting other similar 
associations: the Rossendale Industrial 
Company, capital 40,000?.; the Wals- 
den Co-operative Company, capital 
8000?.; the Bacup and Wardle Com¬ 
mercial Company, with a capital • of 
40,000?., “ of which more than one- 
third is borrowed at 5 per cent, and 
this circumstance, during the last two 
years of unexampled commercial pros¬ 
perity, has caused the rate of dividend 
to shareholders to rise to an almost 
fabulous height.” 

It is not necessary to enter into any 
details respecting the subsequent his¬ 
tory of English Co-operation; the less 
so, as it is now one of the recognised 
elements in the progressive movement 
of the age, and as such, has latterly 
been the subject of elaborate articles in 
most of our leading periodicals, the 
most recent, and one of the best of 
which, was in the Edinburgh Review 

the capital or assets of the society is 
59,536b 10s. Id., or more than last quarter 
by 3687b 13s. Id. The cash received for sale 
of goods is 45,806b Os. lO-Jd., bcingan increase 
of 2233b 12s. 5 \d., as compared with the pre¬ 
vious three months. The profit realized is 
5713b 2s. 7 \d., which after depreciating fixed 
stock account 182b 2s. 4 \d., paying interest 
on share capital 698b 17s. 6<b, applying 2-| per 
cent to an educational fund, viz. 122b 17s. 9<b, 
leaves a dividend to members on their pur- 
•chases of 2s. id. in the pound. Non-members 
have received 261b 18s. id., at Is. 8 d. in the 
pound on their purchases, leaving 8 d. in the 
pound profit, to the society, which increases 
the reserve fund 104b 15s. id. This fund 
now stands at 1352b 7s. ll$<b the accumula¬ 
tion of profits from the trade of the public 
with the store since September 1862, over 
and above the Is. 8cbin the pound allowed to 
such purchasers.” 


for October 1864 : and tire progress of 
Co-operation from month to month is 
regularly chronicled in the “Co-opera¬ 
tor.” I must not, however, omit to 
mention the last great step in advance, 
in reference to the Co-operative Stores; 
the formation, in the North of England 
(and another is in course of formation 
in London) of a Wholesale Society, to 
dispense with the services of the whole¬ 
sale merchant as well as of the retail 
dealer, and extend to the Societies the 
advantage which each society gives to 
its own members, by an agency for 
co-operative purchases of foreign as 
well as domestic commodities direct 
from the producers. 

It is hardly possible to take any but 
a hopeful view of the prospects of man¬ 
kind, when in the two leading countries 
of the world, the obscure depths of 
society contain simple working men 
whose integrity, good sense, self-com¬ 
mand, and honourable confidence in 
one another, have enabled them to 
carry these noble experiments to the 
triumphant issue which the facts 
recorded in the preceding pages 
attest. 

From the progressive advance of the 
co-operative movement, a great in¬ 
crease may be looked for even in the 
aggregate productiveness of industry. 
The sources of the increase are two¬ 
fold. In the first place, the class of 
mere distributors, who are not pro¬ 
ducers hut auxiliaries of production, 
and whose inordinate numbers, far 
more than the gains of capitalists, are 
the cause why so great a portion of the 
wealth produced does not reach the 
producers—will he reduced to more 
modest dimensions. Distributors differ 
from producers in this, that when pro¬ 
ducers increase, even though in any 
given department of industry they may 
be too numerous, they actually produce 
more: but the multiplication of distri¬ 
butors does not make move distribution 
to he done, more wealth to he distri¬ 
buted ; it does hut divide the same 
work among a greater number of per¬ 
sons, seldom even cheapening the pro¬ 
cess. By limiting the distributors to 
the number really required for making 
the commodities accessible to the con- 




PROBABLE FUTURE OF THE LABOURING CLASSES. 475 


sinners—which is the direct effect of 
the co-operative system—a vast number 
of hands will be set free for production, 
and the capital which feeds and the 
gains which remunerate them will be 
applied to feed and remunerate pro¬ 
ducers. This great economy of the 
world’s resources would be realized, 
even if co-operation stopped at as¬ 
sociations for purchase and con¬ 
sumption, without extending to pro¬ 
duction. 

The other mode in which co-opera¬ 
tion tends, still more efficaciously, to 
increase the productiveness of labour, 
consists in the vast stimulus given to 
productive energies, by placing the 
labourers, as a mass, in a relation to 
their work which would make it then- 
principle and their interest—at present 
it is neither—|o do the utmost instead 
of the least possible in exchange for 
their remuneration. It is scarcely 
possible to rate too highly this material 
benefit, which yet is as nothing com¬ 
pared with the moral revolution in 
society that would accompany it: the 
healing of the standing feud between 
capital and labour; the transformation 
of human life, from a conflict of classes 
struggling for opposite interests, to a 
friendly rivalry in the pursuit of a good 
common to all; the elevation of the 
dignity of labour, a new sense of 
security and independence in the 
labouring class, and the conversion 
of each human being’s daily occu¬ 
pation into a school of the social 
sympathies and the practical intelli¬ 
gence. 

Such is the noble ideal which the 
promoters of Co-operation should have 
before them. But to attain, in any 
degree, these objects, it is indispensable 
that all, and not some only, of those 
who do the work, should be identified 
in interest with the prosperity of the 
undertaking. Associations which, 
when they have been successful, re¬ 
nounce the essential principle of the 
system, and become joint-stock com¬ 
panies of a limited number of share¬ 
holders, who differ from those of other 
companies only in being working men ; 
associations which employ hired la¬ 
bourers without any interest in the 


profits (and I grieve to say that the 
Manufacturing Society even of Roch¬ 
dale has thus degenerated), are, no 
doubt, exercising a lawful right in 
honestly employing the existing system 
of society to improve their position as 
individuals: but it is not from them 
that anything needs be expected to¬ 
wards replacing that system by a 
better. Neither will such societies, in 
the long run, succeed in keeping their 
ground against individual competition. 
Individual management by the one 
person principally interested, has great 
advantages over every description of 
collective management: co-operation 
has but one thing to oppose to those 
advantages—the common interest of all 
the workers in the work. When indi¬ 
vidual capitalists, as they will cer¬ 
tainly do, add this to their other points 
of advantage; when, even if only to 
increase their gains, they take up the 
practice which these co-operative socie¬ 
ties have dropped, and connect the 
pecuniary interest of every person in 
their employment with the most effi¬ 
cient and most economical manage¬ 
ment of the concern ; they are likely to 
gain an easy victory over societies 
which retain the defects, while they 
cannot possess the full advantages, of 
the old system. 

Under the most favourable supposi¬ 
tion it will be desirable, and perhaps 
for a considerable length of time, that 
individual capitalists associating their 
workpeople in the profits, should co¬ 
exist with even those co-operative 
socielies which are faithful to the co¬ 
operative principle. Unity of authority 
makes many things possible, which 
could not, or would not, be undertaken, 
subject to the chance of divided coun¬ 
cils, or changes in the management. A 
private capitalist, exempt from the 
control of a body, if he is a person of 
capacity, is considerably more likely 
than almost any association to run 
judicious risks, and originate costly 
improvements. Co-operative societies 
may be depended on lor adopting im¬ 
provements after they have been tested 
by success: but individuals are more 
likely to commence things previously 
untried. Even in ordinary business, 



BOOK IV. CHAPTER VII. § 7. 


476 

the competition of capable persons who 
in the event of failure are to have all 
the loss, and in case of success the 
greater part of the gain, will be very 
useful in keeping the managers of co¬ 
operative societies up to the due pitch 
of activity and vigilance. 

When, however,co-operative societies 
shall have sufficiently multiplied, it is 
not probable that any but the least 
valuable workpeople will any longer 
consent to work all their lives for wages 
merely: and both private capitalists 
and associations will gradually find it 
necessary to make the entire body of 
labourers participants in profits. Even¬ 
tually, and in perhaps a less remote 
future than may be supposed, we may, 
through the co-operative principle, see 
our way to a change in society, which 
would combine the freedom and inde¬ 
pendence of the individual, with the 
moral, intellectual, and economical 
advantages of aggregate production ; 
and which, without violence or spolia¬ 
tion, or even any sudden disturbance 
of existing habits and expectations, 
would realize, at least in the industrial 
department, the best aspirations of the 
democratic spirit, by putting an end to 
the division of society into the indus¬ 
trious and the idle, and effacing all 
social distinctions but those fairly 
earned by personal services and exer¬ 
tions. Associations like those which 
we have described, by the very process 
of their success, are a course of educa¬ 
tion in those moral and active qualities 
by which alone success can be either 
deserved or attained. As associations 
multiplied, they would tend more and 
more to absorb all workpeople, except 
those who have too lit tle understanding, 
or too little ivirtue, to be capable of 
learning to act on any other system 
than that of narrow selfishness. As 
this change proceeded, owners of capi¬ 
tal would gradually find it to their 
advantage, instead of maintaining the 
struggle of the old system with work¬ 
people of only the worst description, to 
lend their capital to the associations; 
to do this at a diminishing rate of in¬ 
terest, and at last, perhaps, even to 
exchange their capital for terminable 
annuities. In this or some such mode, 


the existing accumulations of capital 
might honestly, and by a kind of spon¬ 
taneous process, become in the end the 
joint property of all who participate in 
their productive employment: a trans¬ 
formation which, thus effected, (and 
assuming of course that both sexes 
participate equally in the rights and 
in the government of the association)* 
would be the nearest approach to social 
justice, and the most beneficial order¬ 
ing of industrial affairs for the universal 
good, which it is possible at present to 
foresee. 

§ 7. I agree, then, with the So¬ 
cialist writers in their conception of 
the form which industrial operations 
tend to assume in the advance of im¬ 
provement ; and I entirely share their 
opinion that the time ^ ripe for com¬ 
mencing this transformation, and that 
it should by all just and effectual means 
be aided and encouraged. But while 
I agree and sympathize with Socialists 
in this practical portion of their aims, 
I utterly dissent from the most conspi¬ 
cuous and vehement part of their 
teaching, their declamations against 
competition. With moral conceptions 
in many respects far ahead of the ex¬ 
isting arrangements of society, they 
have in general very confused and 
erroneous notions of its actual working ; 
and one of their greatest errors, as 1 
conceive, is to charge upon competition, 
all the economical evils which at 
present exist. They forget that wher¬ 
ever competition is not, monopoly is; 

* In this respect also the Rochdale Society 
has given an [example of reason and justice, 
worthy of the good sense and good feeling 
manifested in their general proceedings. 
“ The Rochdale Store,” says Mr. Holyoake, 
“ renders incidental but valuable aid towards 
realizing the civil independence of women. 
Women may be members of this Store, and 
vote in its proceedings. Single and married 
women join. Many married women become 
members because their husbands will not 
take the trouble, and others join in it in self- 
defence, to prevent the husband from spend¬ 
ing their money in drink. The husband can¬ 
not withdraw the savings at the Store stand¬ 
ing in the wife’s name, unless she signs the 
order. Of course, as the law still stands, the 
husband could by legal process get possession 
of the money. But a process takes time, and 
the husband gets sober and thinks better of 
it before the law can move.” 




PROBABLE FUTURE OF THE LABOURING CLASSES. 477 


and that monopoly, in all its forms, is 
the taxation of the industrious for the 
support of indolence, if not of plunder. 
They forget, too, that with the excep¬ 
tion of competition among labourers, 
all other competition is for the benefit 
of the labourers, by cheapening the 
articles they consume; that competi¬ 
tion even in the labour market is a 
source not of low but of high wages, 
wherever the competition for labour 
exceeds the competition of labour, as 
in America, in the colonies, and in the 
skilled trades; and never could be a 
cause of low wages, save by the over¬ 
stocking of the labour market through 
the too great numbers of the labourers’ 
families; while, if the supply of la¬ 
bourers is excessive, not even Socialism 
can prevent their remuneration from 
being low. Besides, if association were 
universal, there would be no competi¬ 
tion between labourer and labourer; 
and that between association and asso¬ 
ciation would be for the benefit of the 
consumers, that is, of the associa¬ 
tions ; of the industrious classes gene¬ 
rally. 

I do not pretend that there are no 
inconveniences in competition, or that 
the moral objections urged against it 
by Socialist writers, as a source of 
jealousy and hostility among those 
engaged in the same occupation, are 
altogether groundless. But if compe¬ 
tition has its evils, it prevents greater 
evils. As M. Feugueray well says,* 
“The deepest root of the evils and ini¬ 
quities which fill the industrial world, 
is not competition, but the subjection 
of labour to capital, and the enormous 
share which the possessors of the in¬ 
struments of industry are able to take 
from the produce. If competi¬ 

tion has great power for evil, it is no 
less fertile of good, especially in what 
regards the development of the indi¬ 
vidual faculties, and the success of 
innovations.” It is the common error 
of Socialists to overlook the natural in¬ 
dolence of mankind ; their tendency to 
be passive, to be the slaves of habit, to 
persist indefinitely in a course once 
chosen. Let them once attain any 


state of existence which they consider 
tolerable, and the danger to be appre¬ 
hended is that they will thenceforth 
stagnate ; will not exert themselves to 
improve, and by letting their faculties 
rust, will lose even the energy required 
to preserve them from deterioration. 
Competition may not be the best con¬ 
ceivable stimulus, but it is at present a 
necessary one, and no one can foresee 
the time when it will not be indispen¬ 
sable to progress. Even confining our¬ 
selves to the industrial department, in 
which, more than in any other, the 
majority may be supposed to be com¬ 
petent judges of improvements; it 
would be difficult to induce the general 
assembly of an association to submit to 
the trouble and inconvenience of alter¬ 
ing their habits by adopting some new 
and promising invention, unless their 
knowledge of the existence of rival 
associations made them apprehend that 
what they would not consent to do, 
others would, and that they would be 
left behind in the race. 

Instead of looking upon competition 
as the baneful and anti-social principle 
which it is held to be by the generality 
of Socialists, I conceive that, even in 
the present state of society and in¬ 
dustry, every restriction of it is an evil, 
and every extension of it, even if for 
the time injuriously affecting some 
class of labourers, is always an ultimate 
good. To be protected against com¬ 
petition is to be protected in idleness, 
in mental dulness; to be saved the 
necessity of being as active and as in¬ 
telligent as other people; and if it is 
also to be protected against being un¬ 
derbid for employment by a less highly 
paid class of labourers, this is only 
where old custom or local and partial 
monopoly has placed some particular 
class of artisans in a privileged position 
as compared with the rest; and the 
time has come when the interest of 
universal improvement is no longer 
promoted by prolonging the privileges 
of a few. If the slopsellers and others 
of their class have lowered the wages 
of tailors, and some other artisans, by 
making them an affair of competition 
instead of custom, so much the better 
in the end. What is now required is 


* P. CO. 







478 BOOK IV. CHAPTER VH. § 7. 

not to bolster up old customs, whereby | feel, that they have the same interests), 
limited classes of labouring people ob- and depend for their remuneration on 
tain partial gains which interest them the same general causes, and must re¬ 
in keeping up the present organization j sort for the improvement of their eon- 
of society, but to introduce new general j dition to the same remedies, as the less 
practices beneficial to all; and there is fortunately circumstanced and compa- 
reason to rejoice at whatever makes ratively helpless multitude, 
the privileged classes of skilled artisans 





book v. 


ON THE INFLUENCE OF GOVERNMENT. 


CHAPTER L 


OF THE FUNCTIONS OF GOVERNMENT IN GENERAL. 


§ 1. One of the most disputed 
questions both in political science and 
in practical statesmanship at this par¬ 
ticular period, relates to the proper 
limits of the functions and agency of 
governments. At other times it has 
been a subject of controversy how go¬ 
vernments should be constituted, and 
according to what principles and rules 
they should exercise their authority; 
but it is now almost equally a question, 
to what departments of human affairs 
that authority should extend. And 
when the tide sets so strongly towards 
changes in government and legislation, 
as a means of improving the condition 
of mankind, this discussion is more 
likely to increase than to diminish in 
interest. On the one hand, impatient 
reformers, thinking it easier and shorter 
to get possession of the government 
than of the intellects and dispositions 
of the public, are under a constant 
temptation to stretch the province of 
government beyond due bounds : while, 
on the other, mankind have been so 
much accustomed by their rulers to in¬ 
terference for purposes other than the 
public good, or under an erroneous con¬ 
ception of what that good requires, 
and so many rash proposals are made 
by sincere lovers of improvement, for 
attempting, by compulsory regulation, 
the attainment of objects which can 
only be effectually or only usefully 
compassed by opinion and discussion, 
that there has grown up a spirit of re¬ 
sistance in limine to the interference 
of government, merely as such, and a 
disposition to restrict its sphere of 


action within the narrowest bounds. 
From differences in the historical de¬ 
velopment of different nations, not 
necessary to be here dwelt upon, the 
former excess, that of exaggerating 
the province of government, prevails 
most, both in theory and in practice, 
among the Continental nations, while 
in England the contrary spirit has 
hitherto been predominant. 

The general principles of the ques¬ 
tion, in so far as it is a question of 
principle, 1 shall make an attempt to 
determine in a later chapter of this 
Book: after lirst considering the effects 
produced by the conduct of government 
in the exercise of the functions univer¬ 
sally acknowledged to belong to it. 
For this purpose, there must be a 
specification of the functions which are 
either inseparable from the idea of a 
government, or are exercised habitually 
and without objection by all govern¬ 
ments ; as distinguished from those 
respecting which it has been considered 
questionable whether governments 
should exercise them or not. The 
former may be termed the necessary, 
the latter the optional, functions of 
government. By the term optional it 
is not meant to imply, that it can ever 
be a matter of indifference, or of arbi¬ 
trary choice, whether the government 
should or should not take upon itself 
the functions in question; but only 
that the expediency of its exercising 
them does not amount to necessity, and 
is a subject on which diversity of 
opinion docs or may exist. 








480* BOOK V. CHAPTER I. § 2. 


§ 2. In attempting to enumerate 
the necessary functions of government, 
we find them to be considerably more 
multifarious than most people are at 
first aware of, and not capable of being 
circumscribed by those very definite 
lines of demarcation, which, in the in¬ 
considerateness of popular discussion, 
it is often attempted to draw round 
them. We sometimes, for example, 
hear it said that governments ought to 
confine themselves to affording protec¬ 
tion against force and fraud: that, 
these two things apart, people should 
he free agents, able to take care of 
themselves, and that so long as a person 
practises no violence or deception, to 
the injury of others in person or pro¬ 
perty, legislatures and governments 
are in no way called on to concern 
themselves about him. But why should 
people be protected by their govern¬ 
ment, that is, by their own collective 
strength, against violence and fraud, 

. and not against other evils, except that 
the expediency is more obvious? If 
nothing, but what people cannot pos¬ 
sibly do for themselves, can be fit to be 
done for them by government, people 
might be required to protect them¬ 
selves by their skill and courage even 
against force, or to beg or buy protec - 
tion against it, as they actually do 
where the government is not capable 
of protecting them : and against fraud 
every one has the protection of his own 
wits. But without further anticipating 
the discussion of principles, it is suffi¬ 
cient on the present occasion to con¬ 
sider facts. 

Under which of these heads, the re¬ 
pression of force or of fraud, are we to 
place the operation, for example, of the 
laws of inheritance ? Some such laws 
must exist in all societies. It may be 
said, perhaps, that in this matter go¬ 
vernment has merely to give effect to 
the disposition which an individual 
makes of his own property by will. 
This, however, is at least extremely 
disputable ; there is probably no coun¬ 
try by whose laws the power of testa¬ 
mentary disposition is perfectly abso¬ 
lute. And suppose the very common 
case of there being no will: does not 
the law, that is, the government, decide 


on principles of general expediency, 
who shall take the succession ? and in 
case the successor is in any manner 
incompetent, does it not appoint per¬ 
sons, frequently officers of its own, to 
collect the property and apply it to his 
benefit? There are many other cases 
in which the government undertakes 
the administration of property, because 
the public interest, or perhaps only 
that of the particular persons con¬ 
cerned, is thought to require it. This 
is often done in cases of litigated pro¬ 
perty; and in cases of judicially de¬ 
clared insolvency. It has never been 
contended that in doing these things, 
a government exceeds its province. 

Nor is the function of the law in de¬ 
fining pi’operty itself, so simple a thing 
as may be supposed. It may be ima¬ 
gined, perhaps, that the law has only 
to declare and protect the right of 
every one to what he has himself pro¬ 
duced, or acquired by the voluntary 
consent, fairly obtained, of those who 
produced it. But is there nothing re¬ 
cognised as property except what has 
been produced? Is there not the earth 
itself, its forests and waters, and all 
other natural riches, above and below 
the surface? These are the inheri¬ 
tance of the human race, and there 
must be regulations for the common 
enjoyment of it. What rights, and 
under what conditions, a person shall 
be allowed to exercise over any portion 
of this common inheritance, cannot be 
left undecided. No function of govern¬ 
ment is less optional than the regula¬ 
tion of these things, or more com¬ 
pletely involved in the idea of civilized 
society. 

Again, the legitimacy is conceded of 
repressing violence or treachery ; but 
under which of these heads are we to 
place the obligation imposed on people 
to perforin their contracts ? Non-per¬ 
formance does not necessarily imply 
fraud ; the person who entered into the 
contract may have sincerely intended 
to fulfil it: and the term fraud, which 
can scarcely admit of being extended 
even to the case of voluntary breach of 
contract when no deception was prac¬ 
tised, is certainly not applicable vhen 
the omission to perform is a case of 



FUNCTIONS OF GOVERNMENT IN GENERAL. 


negligence. Is it no part of the duty 
of governments to enforce contracts ? 
Here the doctrine of non-interference 
would no doubt be stretched a little, 
and it would be said, that enforcing 
contracts is not regulating the affairs 
of individuals at the pleasure of govern¬ 
ment, but giving effect to their own 
expressed desire. Let us acquiesce in 
this enlargement of the restrictive 
theory, and take it for what it is worth. 
But governments do not limit their 
concern with contracts to a simple en¬ 
forcement. They take upon themselves 
to determine what contracts are fit to 
be enforced. It is not enough that one 
person, not being either cheated or 
compelled, makes a promise to another. 
There are promises by which it is not 
for the public good that persons should 
have the power of binding themselves. 
To say nothing of engagements to do 
something contrary to law, there are 
engagements which the law refuses to 
enforce, for reasons connected with the 
interest of the promiser, or with the 
general policy of the state. A contract 
by which a person sells himself to an¬ 
other as a slave, would be declared 
void by the tribunals of this and of 
most other European countries. There 
are few nations whose laws enforce a 
contract for what is looked upon as 
prostitution, or any matrimonial en¬ 
gagement of which the conditions vary 
in any respect from those which the 
law has thought fit to prescribe. But 
when once it is admitted that there are 
any engagements which for reasons of 
expediency the law ought not to en¬ 
force, the same question is necessarily 
opened with respect to all engage¬ 
ments. Whether, for example, the law 
should enforce a contract to labour, 
when the wages are too low, or the 
hours of work too severe: whether it 
should enforce a contract by which a 
person binds himself to remain, for 
more than a very limited period, in the 
service of a given individual: whether 
a contract of marriage, entered into for 
life, should continue to be enforced 
against the deliberate will of the per¬ 
sons, or of either of the persons, who 
entered into it. Every question which 
can possibly arise as to the policy of 
r.n. 


481 

contracts, and of the relations which 
they establish among human beings, is 
a question for the legislator ; and one 
which he cannot escape from con¬ 
sidering, and in some way or other 
deciding. 

Again, the prevention and suppres¬ 
sion of force and fraud afford appro¬ 
priate employment for soldiers, police¬ 
men, and criminal judges ; but there 
are also civil tribunals. The punish¬ 
ment of wrong is one business of an 
administration of justice, but the de¬ 
cision of disputes is another. Innu¬ 
merable disputes arise between per¬ 
sons, without mala fides on either side, 
through misconception of their legal 
rights, or from not being agreed about 
the facts, on the proof of which those 
rights are legally dependent. Is it 
not for the general interest that the 
State should appoint persons to clear 
up these uncertainties and terminate 
these disputes ? It cannot be said to 
be a case of absolute necessity. People 
might appoint an arbitrator, and en¬ 
gage to submit to his decision; and 
they do so where there are no courts 
of justice, or where the courts are not 
trusted, or where their delays and 
expenses, or the irrationality of their 
rules of evidence, deter people from 
resorting to them. Still, it is uni¬ 
versally thought right that the State 
should establish civil tribunals; and 
if their defects often drive people to 
have recourse to substitutes, even then 
the power held in reserve of carrying 
the case before a legally constituted 
court, gives to the substitutes their 
principal efficacy. 

Not only does the State undertake 
to decide disputes, it takes precautions 
j beforehand that disputes may not arise, 
i The laws of most countries lay down 
rules for determining many things, not 
because it is of much consequence in 
what way they are determined, but in 
order that they may be determined 
somehow, and there may be no ques¬ 
tion on the subject. The law pre¬ 
scribes forms of words for many kinds 
of contract, in order that no dispute 
or misunderstanding may arise about 
their meaning: it makes provision 
j that if a dispute does arise, evidence 







482 BOOK Y. CHAPTER I. § 3. 


shall be procurable for deciding it, by 
requiring that the document be at¬ 
tested by witnesses and executed 
with certain formalities. The law 
preserves authentic evidence of facts 
to which legal consequences are at¬ 
tached, by keeping a registry of such 
facts ; as of births, deaths, and mar¬ 
riages, of wills and contracts, and of 
judicial proceedings. In doing these 
things, it has never been alleged that 
government oversteps the proper limits 
of its functions. 

Again, however wide a scope we 
may allow to the doctrine that indi¬ 
viduals are the proper guardians of 
their own interests, and that govern¬ 
ment owes nothing to them but to 
save them from being interfered with 
by other people, the doctrine can never 
be applicable to any persons but those 
who are capable of acting in their own 
behalf. The individual may be an 
infant, or a lunatic, or fallen into 
imbecility. The law surely must look 
after the interests of such persons. It 
does not necessarily do this through 
officers of its own. It often devolves 
the trust upon some relative? or 
connexion. But in doing so is its 
duty ended ? Can it make over the 
interests of one person to the control 
of another, and be excused from super¬ 
vision, or from holding the person 
thus trusted, responsible for the dis¬ 
charge of the trust ? 

There is a multitude of cases in 
which governments, with general ap¬ 
probation, assume powers and execute 
functions for which no reason can be 
assigned except the simple one, that 
they conduce to general convenience. 
We may take as an example, the 
function (which is a monopoly too) of 
coining money. This is assumed for 
no more recondite purpose than that 
of saving to individuals the trouble, 
delay, and expense of weighing and 
assaying. No one, however, even of 
those most jealous of state interfer¬ 
ence, has objected to this as an im¬ 
proper exercise of tire powers of 
government. Prescribing a set of 
standard weights and measures is 
another instance. Paving, lighting, 
and cleansing the streets and tho¬ 


roughfares, is another ; whether done 
by the general government, or, as is 
more usual, and generally more ad 
visable, by a municipal authority. 
Making or improving harbours, build¬ 
ing lighthouses, making surveys in 
order to have accurate maps and 
charts, raising dykes to keep the sea 
out, and embankments to keep rivers 
in, are cases in point. 

Examples might be indefinitely mul¬ 
tiplied without intruding on any dis¬ 
puted ground. But enough has been 
said to show that the admitted func¬ 
tions of government embrace a much 
wider field than can easily be included 
within the ring-fence of any restrictive 
definition, and that it is hardly' pos¬ 
sible to find any ground of justification 
common to them all, except the com¬ 
prehensive one of general expediency'; 
nor to limit the interference of govern¬ 
ment by any universal rule, save the 
simple and vague one that it should 
never be admitted but when the case 
of expediency is strong. 

§ 3. Some observations, however, 
may be usefully bestowed on the 
nature of the considerations on which 
the question of government interference 
is most likely to turn, and on the 
mode of estimating the comparative 
magnitude of the expediencies in¬ 
volved. This will form the last of 
the three parts into which our discus¬ 
sion of the principles and effects of 
government interference may con- 
venientlv be divided. The following: 
will be our division of the subject. 

We shall first consider the econo¬ 
mical effects arising from the manner 
in which governments perform their 
necessary and acknowledged func¬ 
tions. 

We shall then pass to certain go¬ 
vernmental interferences of what I 
have termed the optional kind ( i.e . 
overstepping the boundaries of the 
universally acknowledged functions) 
which have heretofore taken place, 
and in some cases still take place, 
under the influence of false general 
theories. 

It will lastly remain to inquire 
whether, independently of any false 








GENERAL PRINCIPLES OF TAXATION. 


theory, and consistently with a correct 
view of the laws which regulate human 
affairs, there he any cases of the 
optional class in which governmental 
interference is really advisable, and 
what are those cases. 

The first of these divisions is of an 
■extremely miscellaneous character: 
since the necessary functions of go¬ 
vernment, and those which are so 
manifestly expedient that they have 
never or very rarely been objected to, 
are, as already pointed out, too 
various to be brought under any very 
simple classification. Those, how¬ 
ever, which are of principal import¬ 
ance, which alone it is necessary here 


483 

to consider, may bb reduced to the 
following general heads. 

First, the means adopted by govern- 
ments to raise the revenue which is the 
condition of their existence. 

Secondly, the nature of the laws 
which they prescribe on the two 
great subjects of Property and Con¬ 
tracts. 

Thirdly, the excellences or defects 
of the system of means by which they 
enforce generally the execution of 
their laws, namely, their judicature 
and police. 

We commence with the first head, 
that is, with the theory of Taxa¬ 
tion. 


CHAPTER II. 

ON THE GENERAL PRINCIPLES OF TAXATION. 


§ 1. The qualities desirable, eco¬ 
nomically speaking, in a system of 
taxation, have been embodied by 
Adam Smith in four maxims or prin¬ 
ciples, which, having been generally 
concurred in by subsequent writers, 
may be said to have become classical, 
and this chapter cannot be better com¬ 
menced than by quoting them.* 

“ 1. The subjects of every state 
ought to contribute to the support of 
the government, as nearly as possible 
in proportion to their respective abili¬ 
ties : that is, in proportion to the re¬ 
venue which they respectively enjoy 
under the protection of the state. In 
the observation or neglect of this 
maxim consists what is called the 
equality or inequality of taxation. 

“ 2. The tax which each individual 
is bound to pay ought to be certain, 
and not arbitrary. The time of pay¬ 
ment, the manner of payment, the 
quantity to be paid, ought all to be 
clear and plain to the contributor, and 
to every other person. Where it is 
otherwise, every person subject to the 
tax is put more or less in the power of 
* Wealth of Nations , book v. ch ii. 


the taxgatherer, who can either aggra¬ 
vate the tax upon any obnoxious" con¬ 
tributor, or extort by the terror of such 
aggravation, some present or perqui¬ 
site to himself. The uncertainty of 
taxation encourages the insolence and 
favours the corruption of an order of 
i men who are naturally uupopular, 
j even when they are neither insolent 
nor corrupt. The certainty of what 
| each individual ought to pay is, in 
taxation, a matter of so great impor¬ 
tance, that a very considerable degree 
of inequality, it appears, I believe, 
from the experience of all nations, is 
not near so great an evil, as a very 
i small degree of uncertainty. 

“ 3. Every tax ought to be levied at 
I the time, or in the manner, in which 
' it is most likely to be convenient for 
J the contributor to pay it. A tax upon 
I the rent of land or of houses, payable 
at the same term at which such rents 
are usually paid, is levied at a time 
when it is most likely to be convenient 
for the contributor to pay; or when he 
is most likely to have wherewithal to 
pay. Taxes upon such consumable 
goods as are articles of luxury, are all 








BOOK V. CHAPTER IT. § 2. 


4S4 

finally paid by the consumer, and 
generally in a manner that is very 
convenient to him. He pays them 
by little and little, as he has occasion 
to buy the goods. As he is at liberty, 
too, either to buy or not to buy, as lie 
pleases, it must be his own fault if he 
ever sutlers any considerable incon¬ 
venience from such taxes. 

“ 4. Every tax ought to be so con¬ 
trived as both to take out and to keep 
out of the pockets of the people as 
little as possible over and above what 
it brings into the public treasury of 
the state. A tax may either take out 
or keep out of the pockets of the people 
a great deal more than it brings into 
the public treasury, in the four follow¬ 
ing ways. First, the levying of it 
may require a great number of officers, 
■whose salaries may eat up the greater 
part of the produce of the tax, and 
whose perquisites may impose another 
additional tax upon the people.” Se¬ 
condly, it may divert a portion of the 
labour and capital of the community 
from a more to a less productive em¬ 
ployment. “ Thirdly, by the forfeitures 
and other penalties which those un¬ 
fortunate individuals incur who at¬ 
tempt unsuccessfully to evade the tax, 
it may frequently ruin them, and there¬ 
by put an end to the benefit which the 
community might have derived from 
the employment of their capitals. An 
injudicious tax offers a great tempta¬ 
tion to smuggling. Fourthly, by sub¬ 
jecting the people to the frequent visits 
and the odious examination of the tax- 
gatherers, it may expose them to much 
unnecessary trouble, vexation, and op¬ 
pression to which may be added, 
that the restrictive regulations to 
which trades and manufactures are 
often subjected to prevent evasion of a 
tax, are not only in themselves trouble¬ 
some and expensive, but often oppose 
insuperable obstacles to making im¬ 
provements in the processes. 

The last three of these four maxims 
require little other explanation or illus¬ 
tration than is contained in the pas¬ 
sage itself. How far any given tax 
conforms to, or conflicts with them, is 
a matter to be considered in the dis¬ 
cussion of particular taxes. But the 


first of the four points, equality of tax¬ 
ation, requires to be more fully exa¬ 
mined, being a thing often imperfectly 
understood, and on which many false 
notions have become to a certain de¬ 
gree accredited, through the absence 
of any definite principles of judgment 
in the popular mind. 

§ 2. For what reason ought equality 
to be the rule in matters of taxation? 
For the reason, that it ought to be so 
in all affairs of government. As a 
government ought to make no dis¬ 
tinction of persons or classes in the 
strength of their claims on it, what¬ 
ever sacrifices it requires from them 
should be made to bear as nearly as 
possible with the same pressure upon 
all; which, it must be observed, is the 
mode by which least sacrifice is occa¬ 
sioned on the whole. If any one bears 
less than his fair share of the burthen, 
some other person must suffer more 
than his share, and the alleviation to 
the one is not, on the average, so 
great a good to him, as the increased 
pressure upon the other is an evil. 
Equality of taxation, therefore, as a 
maxim of politics, means equality of 
sacrifice. It means apportioning the 
contribution of each person towards 
the expenses of government, so that 
he shall feel neither more nor less 
inconvenience from his share of the 
payment than every other person ex¬ 
periences from his. This standard, 
like other standards of perfection, can¬ 
not be completely realized; but the 
first object in every practical discus¬ 
sion should be to know what perfection 
is. 

There are persons, however, who are 
not content with the general principles 
of justice as a basis to ground a rule of 
finance upon, but must have something, 
as they think, more specifically appro¬ 
priate to the subject. What best 
pleases them is, to regard the taxes 
paid by each member of the community 
as an equivalent for value received, in 
the shape of service to himself; and 
they prefer to rest the justice of making 
each contribute in proportion to his 
means, upon the ground, that he who 
has twice as much property to be pro- 




GENERAL PRINCIPLES OF TAXATION. 485 


tec tod, receives, on an accurate calcu¬ 
lation, twice as much protection, and 
ought, on the principles of bargain and 
sale, to pay twice as much for it. 
Since, however, the assumption that 
government exists solely for the pro¬ 
tection of property, is not one to be de¬ 
liberately adhered to; some consistent 
adherents of the quid pro quo principle 
go on to observe, that protection being 
required for person as well as property, 
and everybody’s person receiving the 
same amount of protection, a poll-tax 
of a fixed sum per head is a proper 
equivalent for this part of the benefits 
of government, while the remaining 
part, protection to property, should be 
paid for in proportion to property. 
There is in this adjustment a false air 
of nice adaptation, very acceptable to 
some minds. But in the first place, it 
is not admissible that the protection of 
persons and that of property are the 
sole purposes of government. The 
ends of government are as comprehen¬ 
sive as those of the social union. They 
consist of all the good, and all the im¬ 
munity from evil, which the existence 
of government can be made either 
directly or indirectly to bestow. In 
the second place, the practice of setting 
definite values on things essentially 
indefinite, and making them a ground 
of practical conclusions, is peculiarly 
fertile in false views of social questions. 
It cannot be admitted, that to be pro¬ 
tected in the ownership of ten times as 
much property, is to be ten times as 
much protected. Neither can it be 
truly said that the protection of 1000£. 
a year costs the State ten times as 
much as that of 100Z. a year, rather 
than twice as much, or exactly as 
much. The same judges, soldiers, 
sailors, who protect the one protect the 
other; and the larger income does not 
necessarily, though it may sometimes, 
require even more policemen. Whether 
the labour and expense of the protec¬ 
tion, or the feelings of the protected 
person, or any other definite thing be 
made the standard, there is no such j 
proportion as the one supposed, nor j 
any other definable proportion. If we 
wanted to estimate the degrees of i 
benefit which difierent persons derive | 


from the protection of government, we 
should have to consider who would 
suffer most if that protection were 
withdrawn: to which question if any 
answer could be made, it must be, that 
those would suffer most who were 
weakest in piind or body, either by 
nature or by position. Indeed, such 
persons would almost infallibly be 
slaves. If there were any justice, 
therefore, in the theory of justice now 
under consideration, those who are 
least capable of helping or defending 
themselves, being those to whom the 
protection of government is the most 
indispensable, ought to pay the greatest 
share of its price : the reverse of the 
true idea of distributive justice, which 
consists not in imitating but in re¬ 
dressing the inequalities and wrongs of 
nature. 

Government must be regarded as so 
pre-eminently a concern of all, that to 
determine who are most interested in 
it is of no real importance. If a person 
or class of persons receive so small a 
share of the benefit as makes it neces¬ 
sary to raise the question, there is 
something else than taxation which is 
amiss, and the thing to be done is to 
remedy the defect, instead of recognis¬ 
ing it and making it a ground for de¬ 
manding less taxes. As, in a case of 
voluntary subscription for a purpose in 
which all are interested, all are thought 
to have done their part fairly when 
each has contributed according to his 
means, that is, has made an equal 
sacrifice for the common object; in 
like manner should this be the prin¬ 
ciple of compulsory contributions : and 
it is superfluous to look for a more in¬ 
genious or recondite ground to rest the 
principle upon. 

§ 3. Setting out, then, from the 
maxim that equal sacrifices ought to 
be demanded from all, we have next to 
inquire whether this is in fact done, by 
making each contribute the same per¬ 
centage on his pecuniary means. Many 
persons maintain the negative, saying 
that a tenth part taken from a small 
income is a heavier burthen than the 
same fraction deducted from one much 
larger: and on this is grounded the 







486 BOOK V. CHAPTER II. § 3. 


very popular* scheme of what is called 
a graduated property-tax, viz. an in¬ 
come tax in which the percentage rises 
with the amount of the income. 

On the best consideration I am able 
to give to this question, it appears to 
me that the portion of trufh which the 
doctrine contains, arises principally 
from the difference between a tax which 
can he saved from luxuries, and one 
which trenches, in ever so small a de¬ 
gree, upon the necessaries of life. To 
take a thousand a year from the pos¬ 
sessor of ten thousand, would not de¬ 
prive him of anything really conducive 
either to the support or to the comfort 
of existence ; and if such would be the 
effect of taking five pounds from one 
whose income is fifty, the sacrifice re¬ 
quired from the last is not only greater 
than, but entirely incommensurable 
with, that imposed upon the first. The 
mode of adjusting these inequalities of 
pressure which seems to be the most 
equitable, is that recommended by 
Bentham, of leaving a certain mini¬ 
mum of income, sufficient to provide 
the necessaries of life, untaxed. Sup¬ 
pose 50 1. a year to be sufficient to pro¬ 
vide the number of persons ordinarily 
supported from a single income, with 
the requisites of life and health, and 
with protection against habitual bodily 
suffering, but not with any indulgence. 
This then should be made the mini¬ 
mum, and incomes exceeding it should 
pay taxes not upon their whole amount, 
but upon the surplus. If the tax be 
ten per cent, an income of 60?. should 
be considered as a net income of 10?., 
and charged with 1?. a year, while an 
income of 1000?. should be charged as 
one of 950?. Each would then pay a 
fixed proportion, not of his whole 
means, but of his superfluities.* An 
income not exceeding 50?. should not 
be taxed at all, either directly or by 
taxes on necessaries ; for as by suppo¬ 
sition this is the smallest income which 
labour ought to be able to command, 
the government ought not to be a party 

* This principle of assessment has been 
partially adopted by Mr. Gladstone at the 
last renewal of the income tax. From 1007., 
at which the tax begins, up to 2007., the 
income only pays tax on the excess above 
C07. 


to making it smaller. This arrange¬ 
ment however would constitute a 
reason, in addition to others which 
might be stated, for maintaining taxes 
on articles of luxury consumed by the 
poor. The immunity extended to the 
income required for necessaries, should 
depend on its being actually expended 
for that purpose; and the poor who, 
not having more than enough for neces¬ 
saries, divert any part of it to indul¬ 
gences, should like other people con¬ 
tribute their quota out of those in¬ 
dulgences to the expenses of the 
state. 

The exemption in favour of the 
smaller incomes should not, I think, be 
stretched further than to the amount 
of income needful for life, health, and 
immunity from bodily pain. If 50 1. 
a year is sufficient (which may bo 
doubted) for these purposes, an income 
of 100?. a year would, as it seems to 
me, obtain all the relief it is entitled 
to, compared with one of 1000?., by 
being taxed only on 50?. of its amount. 
It may be said, indeed, that to take 
100?. from 1000?. (even giving back 
five pounds) is a heavier impost than 
1000?. taken from 10,000?. (giving 
back the same five pounds). But this 
doctrine seems to me too disputable 
altogether, and even if true at all, not 
true to a sufficient extent, to be made 
the foundation of any rule of taxation.. 
Whether the person with 10,000?. a 
year cares less for 1000?. than the 
person with only 1000?. a year cares 
for 100?., and if so, how much less, 
does not appear to me capable of being 
decided with the degree of certainty on 
which a legislator or a financier ought 
to act. 

Some indeed contend that the redo 
of proportional taxation bears harder 
upon the moderate than upon the large 
incomes, because the same proportional 
payment has more tendency in the 
former case than in the latter, to re¬ 
duce the payer to a lower grade of 
social rank. The fact appears to me 
more than questionable. But even ad¬ 
mitting it, I object to its being con¬ 
sidered incumbent on government to 
shape its course by such considerations, 
or to recognise the notion that social 




GENERAL PRINCIPLES OF TAXATION. 


importance is or can be determined by 
amount of expenditure. Government 
ought to set an example of rating all 
things at their true value, and riches, 
therefore, at the worth, for comfort or 
pleasure, of the things which they will 
buy: and ought not to sanction the 
vulgarity of prizing them for the pitiful 
vanity of being known to possess them, 
or the paltry shame of being suspected 
to be without them, the presiding mo¬ 
tives of three-fourths of the expenditure 
of the middle classes. The sacrifices 
of real comfort or indulgence which 
government requires, it is bound to 
apportion among all persons with as 
much equality as possible; but their 
sacrifices of the imaginary dignity de¬ 
pendent on expense, it may spare itself 
the trouble of estimating. 

Both in England and on the Conti¬ 
nent a graduated property-tax has 
been advocated, on the avowed ground 
that ti e state should use the instru¬ 
ment of taxation as a means of miti¬ 
gating the inequalities of wealth. I 
am a.s desirous as any one, that means 
should be taken to diminish those in- 
equaities, but not so as to relieve the 
prodigal at the expense of the prudent. 
To tac the larger incomes at a higher 
percentage than the smaller, is to lay 
a tax on industry and economy ; to 
impose a penalty on people for having 
worker harder and saved more than 
their ieighbours. It is not the for¬ 
tunes which are earned, but those 
which are unearned, that it is for the 
public good to place under limitation. 
A just and wise legislation would ab¬ 
stain from holding out motives for 
dissipating rather than saving the 
earnings of honest exertion: Its im¬ 
partiality between competitors would 
consist in endeavouring that they 
should all start fair, and not in hang¬ 
ing a weight upon the swift to dimi¬ 
nish the distance between them and 
the slow. Many, indeed, fail with 
greater efforts than those with which 
others succeed, not from difference of 
merits, but difference of opportunities ; 
but if all were done which it would be 
n the power of a good government to 
lo, by instruction and by legislation, 
,o diminish this inequality of oppor- 


487 

tunities, the differences of fortune aris¬ 
ing from people’s own earnings could 
not justly give umbrage. With re¬ 
spect to the large fortunes acquired by 
gift or inheritance, the power of be¬ 
queathing is one of those privileges 
of property which are fit subjects for 
regulation on grounds of general ex¬ 
pediency ; and I have already sug¬ 
gested,* as a possible mode of re¬ 
straining the accumulation of large 
fortunes in the hands of those who 
have not earned them by exertion, a 
limitation of the amount which any 
one person should be permitted to 
acquire by gift, bequest, or inheritance. 
Apart from this, and from the proposal 
of Bentham (also discussed in a former 
chapter) that collateral inheritance in 
case of intestacy should cease, and the 
property escheat to the state, I con¬ 
ceive that inheritances and legacies, 
exceeding a certain amount, are highly 
proper subjects for taxation : and that 
the revenue from them should be as 
great as it can be made without giving 
rise to evasions, by donation during 
life or concealment of property, such 
as it would be impossible adequately 
to check. The principle of graduation 
(as it is called,) that is, of levying a 
larger percentage on a larger sum, 
though its application to general taxa¬ 
tion would be in my opinion objection¬ 
able, seems to me both just and ex¬ 
pedient as applied to legacy and in¬ 
heritance duties. 

The objection to a graduated pro¬ 
perty-tax applies in an aggravated 
degree to the proposition of an exclu¬ 
sive tax on what is called “realized 
property,” that is, property not form¬ 
ing a part of any capital engaged in 
business, or rather in business under 
the superintendence of the owner: as 
land, the public funds, money lent on 
mortgage, and shares (I presume) in 
joint-stock companies. Except the 
proposal of applying a sponge to the 
national debt, no such palpable viola¬ 
tion of common honesty has found 
sufficient support in this country, 
during the present generation, to be 
regarded as within the domain of dis¬ 
cussion. It has not the palliation of 
* Supra, book ii. ch. ii. 





48S 


BOOK V. GIL' 

a graduated property-tax, that of lay¬ 
ing the burthen on those best able to 
bear it; for “realized property” in¬ 
cludes the far larger portion of the 
provision made for those who are un¬ 
able to work, and consists, in great 
part, of extremely sjnall fractions. I 
can hardly conceive a more shameless 
pretension than that the major part of 
the property of the country, that of 
merchants, manufacturers, farmers, and 
shopkeepers, should be exempted from 
its share of taxation; that these classes 
should only begin to pay their propor¬ 
tion after retiring from business, and 
if they never retire should be excused 
from it altogether. But even this does 
not give an adequate idea of the in¬ 
justice of the proposition. The burthen 
thus exclusively thrown on the owners 
of the smaller portion of the wealth of 
the community, would not even be a 
burthen on that class of persons in 
perpetual succession, but would fall 
exclusively on those who happened to 
compose it when the tax was laid on. 
As land and those particular securities 
would thenceforth yield a smaller net 
income, relatively to the general inte¬ 
rest of capital and to the profits of 
trade ; the balance would rectify itself 
by a permanent depreciation of those 
kinds of property. Future buyers 
would acquire land and securities at a 
reduction of price, equivalent to the 
peculiar tax, which tax they would, 
therefore, escape from paying; while 
the original possessors would remain 
burthened with it even after parting 
with the property, since they would 
have sold their land or securities at a 
loss of value equivalent to the fee- 
simple of the tax. Its imposition 
would thus be tantamount to the con¬ 
fiscation for public uses of a percentage 
of their property, equal to the percent¬ 
age kid on their income by the tax. 
That such a proposition should find 
any favour, is a striking instance of 
the want of conscience in matters of 
taxation, resulting from the absence 
of any fixed principles in the public 
mind, and of any indication of a sense 
of justice on the subject in the general 
conduct of governments. Should the 
scheme ever enlist a large party in its 


APTER II. § 4. 

support, the fact would indicate a laxity 
of pecuniary integrity in national af¬ 
fairs, scarcely inferior to American 
repudiation. 

§ 4. "Whether the profits of trade 
may not rightfully be taxed at a lower 
rate than incomes derived from inte¬ 
rest or rent, is part of the more com¬ 
prehensive question, so often mooted 
on the occasion of the present income- 
tax, whether life incomes should be 
subjected to the same rate of taxation 
as perpetual incomes : whether sala¬ 
ries, for example, or annuities, or the 
gains of professions, should pay the 
same percentage as the income from 
inheritable property. 

The existing tax treats all tinds of 
incomes exactly alike, taking its seven- 
pence (now sixpence) in the pound, as 
well from the person whose income 
dies with him, as from the landholder, 
stockholder, or mortgagee, who can 
transmit his fortune undiminished to 
his descendants. This is a-visible in¬ 
justice : yet it does not arithmetically 
violate the rule that taxation ought to 
be in proportion to means. When it 
is said that a temporary income aught 
to be taxed less than a permanent one, 
the reply is iixesistible, that it is taxed 
less ; for the income which las:s only 
ten years pays the tax only ter years, 
while that which lasts for ever pays 
for ever. On this point some financial 
reformers are guilty of a great fallacy. 
They contend that incomes ought to 
be assessed to the income-tax not ia 
proportion to their annual amount, bk, 
to their capitalized value: that, fot 
example, if the value of a perpetual 
annuity of 100/. is 3000/., and a life 
annuity of the same amount being 
worth only half the number of years’ 
purchase could only be sold for 1500/., 
the perpetual income should pay twice 
as much per cent income-tax as the 
terminable income; if the one pays 
10/. a year, the other should pay only 
51. But in this argument there is 
the obvious oversight, that it values 
the incomes by one standard and the 
payments by another; it capitalizes 
the incomes, but l'orgets to capitalize 
the payments. An annuity worth 



GENERAL PRINCIPLES OF TAXATION. 489 


3C00Z. ought, it is alleged, to be taxed 
twice as highly as one which is only 
worth 1500/., and no assertion can be 
more unquestionable; but it is for¬ 
gotten that the income worth 3000/. 
pays to the supposed income-tax 10/. 
a year in perpetuity, which is equiva¬ 
lent, by supposition, to ‘6001., while the 
terminable income pays the same 10/. 
only during the life of its owner, which 
on the same calculation is a value of 
150/., and could actually be bought for 
that sum. Already, therefore, the in¬ 
come which is only half as valuable, 
pays only half as much to the tax; and 
if in addition to this its annual quota 
were reduced from 10/. to 51., it would 
pay, not half, but a fourth part only of 
the payment demanded 1'rom the per¬ 
petual income. To make it just that 
the one income should pay only half 
as much per annum as the other, it 
would be necessary that it should pay 
that half for the same period, that is, 
in perpetuity. 

The rule of payment which this 
school of financial reformers contend 
for, would be very proper if the tax 
■were only to be levied once, to meet 
some national emergency. On the 
principle of requiring from all payers 
an equal sacrifice, every person who 
had anything belonging to him, re¬ 
versioners included, would be called 
on for a payment proportioned to the 
present value of his property. 1 
wonder it does not occur to the re¬ 
formers in question, that precisely be¬ 
cause this principle of assessment 
would be just in the case of a pay¬ 
ment made once for all, it cannot 
possibly be just for a permanent tax. 
When each pays only once, one person 
pays no ol’tcner than another; and the 
proportion which would be just in that 
case, cannot also be just if one person 
has to make the payment only once, 
and the other several times. This, 
however, is the type-of the case which 
actually occurs. The permanent in¬ 
comes pay the tax as much oftener 
than the temporary ones, as a per¬ 
petuity exceeds the certain or un¬ 
certain length of time which forms 
the duration of the income for life or 
years. 


All attempts to establish a claim in 
favour of terminable incomes on nu¬ 
merical grounds—to make out, in 
short, that a proportional tax is not a 
proportional tax—are manifestly ab¬ 
surd. The claim does not rest on 
grounds of arithmetic, but of human 
wants and feelings. It is not because 
the temporary annuitant has smaller 
means, but because he has greater 
necessities, that he ought to be as¬ 
sessed at a lower rate. 

In spite of' the nominal equality of 
income, A, an annuitant of 1000/. a 
year, cannot so well afford to pay 100/. 
out of it, as B who derives the same 
annual sum from heritable property ; 
A having usually a demand on his 
income which B has not, namely, to 
provide by saving for children or 
others; to which, in the case of 
salaries or professional gains, must 
generally be added a provision for his 
own later years ; while B may expend 
his whole income without injury to 
his old age, and still have it all to 
bestow on others after his death. If 
A, in order to meet these exigencies, 
must lay by 300/. of his income, to take 
100/. from him as income-tax is to 
take 100/. from 700/., since it must be 
retrenched from that part only of his 
means which he can afford to spend 
on his own consumption. Were he to 
throw it rateably on what he spends 
and on what he saves, abating 70/. 
from his consumption and 30/. from 
his annual saving, then indeed his 
immediate sacrifice would be propor¬ 
tionally the same as B’s: but then 
his children or his old age would be 
worse provided for in consequence of 
the tax. The capital sum which 
would be accumulated for them would 
be one-tenth less, and on the reduced 
income afforded by this reduced ca¬ 
pital, they would be a second time 
charged with income-tax ; while B’s 
heirs would only be charged once. 

The principle, therefore, of equality 
of taxation, interpreted in its only 
just sense, equality of sacrifice, re¬ 
quires that a person who has no means 
of providing for old age, or for those 
in whom he is interested, except by 
saving from income, should have the 





490 BOOK V. CHAPTER II. § 4. 


tax remitted on all that part of his 
income which is really and bond fide 
applied to that purpose. 

If, indeed, reliance could he placed 
on the conscience of the contributors, 
or sufficient security taken for the cor¬ 
rectness of their statements by colla¬ 
teral precautions, the proper mode of 
assessing an income-tax would be to 
tax only the part of income devoted to 
expenditure, exempting that which is 
saved. For when saved and invested 
(and all savings, speaking generally, 
are invested) it thenceforth pays in¬ 
come - tax on the interest or profit 
which it brings, notwithstanding that 
it has already been taxed on the prin¬ 
cipal. Unless, therefore, savings are 
exempted from income-tax, the con¬ 
tributors are twice taxed on what they 
save, and only once on what they 
spend. A person who spends all he 
receives, pays Id. in the pound, or say 
three per cent, to the tax, and no 
more; but if he saves part of the 
year’s income and buys stock, then in 
addition to the three per cent which 
he has paid on the principal, and 
which diminishes the interest in the 
same ratio, he pays three per cent 
annually on the interest itself, which 
is equivalent to an immediate pay¬ 
ment of a second three per cent on 
the principal. So that while unpro¬ 
ductive expenditure pays only three 
per cent, savings pay six per cent; or 
more correctly, three per cent on the 
whole, and another three per cent on 
the remaining ninety-seven. The dif¬ 
ference thus created to the disad¬ 
vantage of prudence and economy, is 
not only impolitic but unjust. To tax 
the sum invested, and afterwards tax 
also the proceeds of the investment, is 
to tax the same portion of the con¬ 
tributor’s means twice over. The 
principal and the interest cannot 
both together form part of his re¬ 
sources ; they are the same portion 
twice counted: if lie has the interest, 
it is because he abstains from using 
the principal; if he spends the prin¬ 
cipal, he does not receive the in¬ 
terest. Yet because he can do either 
of the two, he is taxed as if he 
could do both , and could have the 


benefit of the saving and that of the 
spending, concurrently with one an¬ 
other. 

It has been urged as an objection to- 
exempting savings from taxation, that 
the law ought not to disturb, by arti¬ 
ficial interference, the natural com¬ 
petition between the motives for 
saving and those for spending. But 
we have seen that the law disturbs 
this natural competition when it taxes 
savings, not when it spares them; for 
as the savings pay at any rate the 
full tax as soon as they are invested, 
their exemption from payment in the 
earlier stage is necessary to prevent 
them from paying twice, while money 
spent in unproductive consumption 
pays only once. It has been further 
objected, that since the rich have the 
greatest means of saving, any privilege 
given to savings is an advantage be¬ 
stowed on the rich at the expense of 
the poor. I answer, that it is bestowed 
on them only in proportion as they 
abdicate the personal use of their 
riches; in proportion as they divert 
their income from the supply of their 
own wants, to a productive invest¬ 
ment, through which, instead of 
being consumed by themselves, it is 
distributed in wages among the 
poor. If this be favouring the rich, 
I should like to have it pointed 
out, what mode of assessing taxation 
can deserve the name of favouring 
the poor. 

No income-tax is really just, from 
which savings are not exempted; and 
no income-tax ought to be voted with¬ 
out that provision, if the form of the 
returns, and the nature of the evidence 
required, could be so arranged as to 
prevent the exemption from being 
taken fraudulent advantage of, by 
saving with one hand and getting 
into debt with the other, or by spend¬ 
ing in the following year what had 
been passed tax-free as saving in the 
year preceding. If this difficulty could 
be surmounted, the difficulties and 
complexities arising from the com¬ 
parative claims of temporary and per¬ 
manent incomes, would disappear; for 
since temporary incomes have no just 
claim to lighter taxation than per- 



GENERAL PRINCIPLES OF TAXATION. 


manent incomes, except in so fai’ as 
their possessors arc more called upon to 
save, the exemption of what they do 
save would fully satisfy the claim. 
But if no plan can he devised for the 
exemption of actual savings, sufficiently 
free from liability to fraud, it is neces¬ 
sary. as the next thing in point of 
justice, to take into account in assess¬ 
ing the tax, what the different classes 
of contributors ought to save. And 
there would probably be no other 
mode of doing this than the rough 
expedient of two different rates of 
assessment. There would be great 
difficulty in taking into account dif¬ 
ferences of duration between one ter¬ 
minable income and another; and in 
the most frequent case, that of incomes 
dependent on life, differences of age and 
health would constitute such extreme 
diversity as it would be impossible to 
take proper cognizance of. It would 
probably be necessary to be content 
with one uniform rate for all incomes 
of inheritance, and another uniform 
rate for all those which necessarily 
terminate with the life of the indi¬ 
vidual. In fixing the proportion be¬ 
tween the two rates, there must 
inevitably be something arbitrary; 
perhaps a deduction of one-fourth in 
favour of life-incomes would be as little 
objectionable as any which could be 
made, it being thus assumed that one- 
fourth of a life-income is, on the 
average of all ages and states of 
health, a suitable proportion to be laid 
by as a provision for successors and 
for old age.* 

* Mr. Hubbard, the first person who, as a 
practical legislator, has attempted the recti¬ 
fication of the income tax on principles of 
unimpeachable justice, and whose well-con¬ 
ceived plan wants little of being as near an 
approximation to a just assessment as it is 
likely that means could be found of carrying 
into practical effect, proposes a deduction 
not of a fourth but of a third, in favour of 
industrial and professional incomes. He fixes 
on this ratio, on the ground that, indepen¬ 
dently of all consideration as to what the 
industrial and professional classes ought to 
save, the attainable evidence goes to prove 
that a third of their incomes is what on an 
average they do save, over and above the 
proportion saved by other classes. “ The 
savings” (Mr. Hubbard observes) “effected 
out of incomes derived from invested pro¬ 
perty are estimated at one-tenth. The 


491 

Of the net profits of persons in 
business, a part, as before observed, 
may be considered as interest on 
capital, and of a perpetual character, 
and the remaining part as remune¬ 
ration for the skill and labour of 
superintendence. The surplus beyond 
interest depends on the life of the in¬ 
savings effected out of industrial incomes are 
estimated at four-tenths. The amounts 
which would be assessed under these two 
classes being neai'ly equal, the adjustment is 
simplified by striking off one-tenth on either 
side, and then reducing by three-tenths, or 
one-third, the assessable amount of indus¬ 
trial incomes.” Proposed Report (p. xiv. of 
the Report and Evidence of the Committee 
of 1861.) In such an estimate there must be 
a large element of conjecture; but in so far 
as it can be substantiated, it affords a valid 
ground for the practical conclusion which 
Mr. Hubbard founds on it. 

Several writers on the subject, including 
Mr. Mill in his Elements of Political 
Economy, and Mr. M‘C’ulloch in his work 
on Taxation, have contended that as much 
should be deducted as would be sufficient to 
insure the possessor’s life for a sum which 
would give to his successors for ever an in¬ 
come equal to what he reserves for himself; 
since this is what the possessor of heritable 
property can do without saving at all: in 
other words, that temporary incomes should 
be converted into perpetual incomes of equal 
present value, and taxed as such. If the 
owners of life-incomes actually did save this 
large propoi’tion of their income, or even a 
still larger, I would gladly grant them an 
exemption from taxation on the whole 
amount, since, if practical means could be 
found of doing it, I would exempt savings 
altogether. But I cannot admit that they 
have a claim to exemption on the general 
assumption of their being obliged to save this 
amount. Owners of life-incomes are not 
bound to forego the enjoyment of them for 
the sake of leaving to a perpetual line of 
successors an independent provision equal 
to their own temporary one; and no one 
ever dreams of doing so. Least of all is it 
to be required or expected from those whose 
incomes are the fruits of personal exertion, 
that they should leave to their posterity for 
ever, without any necessity for exertion, the 
same incomes which they allow to them¬ 
selves. All they are bound to do, even for 
their children, is to place them in circum¬ 
stances in which they will have favourable 
chances of earning their own living. To 
give, however, either to children or to others, 
by bequest, being a legitimate inclination, 
which these persons cannot indulge without 
laying by a part of their income, while the 
owners of heritable property can ; this real 
inequality in cases where the incomes them¬ 
selves are equal, should be considered, to a 
reasonable degree, in the adjustment of taxa¬ 
tion, so as to require from both, as nearly as 
practicable, an equal sacrifice. 







492 BOOK V. CHAPTER II. § 5. 


dividual, and oven on his continuance 
in business, and is entitled to the 
full amount of exemption allowed to 
terminable incomes. It has also, I 
conceive, a just claim to a further 
amount of exemption in consideration 
of its precariousness. An income which 
some not unusual vicissitude may 
reduce to nothing, or even convert into 
a loss, is not the same thing to the 
feelings of the possessor as a perma¬ 
nent income of 1000£. a year, even 
though on an average of years it may 
yield 1000b a year. If life-incomes 
were assessed at three-fourths of their 
amount, the profits of business, after 
deducting interest on capital, should 
not only be assessed at three-fourths, 
but should pay, on that assessment, a 
lower rate. Or perhaps the claims of 
justice in this respect might be suffi¬ 
ciently met by allowing the deduction 
of a fourth on the entire income, 
interest included. 

These are the chief cases, of ordi¬ 
nary occurrence, in which any difficulty 
arises in interpreting the maxim of 
equality of taxation. The proper sense 
to be put upon it, as we have seen in 
the preceding example, is, that people 
should be taxed, not in proportion to 
what they have, but to what they can 
afford to spend. It is no objection to 
this principle that we cannot apply it 
consistently to all cases. A person 
with a life-income and precarious 
health, or who has many persons de¬ 
pending on his exertions, must, if he 
wishes to provide for them after his 
death, be more rigidly economical than 
one who has a life-income of equal 
amount, with a strong constitution, and 
few claims upon him; and if it be 
conceded that taxation cannot accom¬ 
modate itself to these distinctions, it 
is argued that there is no use in at¬ 
tending to any distinctions, where the 
absolute amount of income is the same. 
But the difficulty of doing perfect 
justice, is no reason against doing as 
much as we can. Though it may be 
a hardship to an annuitant whose life 
is only worth five years purchase, to be 
allowed no greater abatement than is 
granted to one whose life is worth 
twenty, it is better for him even so, 


than if neither of them were allowed 
any abatement at all. 

§ 5. Before leaving the subject of 
Equality of Taxation, I must remark 
that there are cases in which exceptions 
may be made to it, consistently with 
that equal justice which is the ground¬ 
work of the rule. Suppose that there 
is a kind of income which constantly 
tends to increase, without any exer¬ 
tion or sacrifice on the part of the 
owners: those owners constituting a 
class in the community, whom the 
natural course of .things progressively 
enriches, consistently with complete 
passiveness on their own part. In such 
a case it would be no violation of the 
principles on which private property 
is grounded, if the state should appro¬ 
priate this increase of wealth, or part 
of it, as it arises. This would not 
properly be taking anything from any 
body ; it would merely be applying an 
accession of wealth, created by circum¬ 
stances, to the benefit of society, in¬ 
stead of allowing it to become an un¬ 
earned appendage to the riches of a 
particular class. 

Now this is actually the case with 
rent. The ordinary progress of a 
society which increases in wealth, is 
at all times tending to augment the 
incomes of landlords; to give them 
both a greater amount and a greater 
proportion of the wealth of the com¬ 
munity, independently of any trouble 
or outlay incurred by themselves. 
They grow richer, as it were in their 
sleep, without working, risking, or 
economizing. What claim have they, 
on the general principle of social 
justice, to this accession of riches? In 
what would they have been wronged 
if society had, from the beginning, 
reserved the right of taxing the spon¬ 
taneous increase of rent, to the highest 
amount required by financial exigen¬ 
cies? I admit that it would be unjust 
to come upon each individual estate, 
and lay hold of the increase which 
might be found to have taken place in 
its rental; because there would be no 
means of distinguishing in individual 
cases, between an increase owing 
solely to the general circumstances of 




GENERAL PRINCIPLES OF TAXATION. 493 


society, anti one ■which was the effect 
of* skill and expenditure on the part of 
the proprietor. The only admissible 
mode of proceeding would be by a 
general measure. The first step 
should be a valuation of all the land 
in the country. The present value of 
all land should be exempt from the 
tax ; but after an interval had elapsed, 
during which society had increased 
in population and capital, a rough 
estimate might be made of the spon¬ 
taneous increase which had accrued 
to rent since the valuation was made. 
Of this the average price of produce 
would be some criterion: if that had 
risen, it would be certain that rent had 
increased, and (as already shown) even 
in a greater ratio than the rise of 
price. On this and other data, an 
approximate estimate might be made, 
how much value had been added to 
the land of the country by natural 
causes; and in laying on a general 
land-tax, which for fear of miscalcu¬ 
lation should be considerably within 
the amount thus indicated, there would 
be an assurance of not touching any 
increase of income which might be 
the result of capital expended or in¬ 
dustry exerted by the proprietor. 

But though there could be no ques¬ 
tion as to the justice of taxing the in¬ 
crease of rent, if society had avowedly 
reserved the right, has not society 
waved that right by not exercising it? 
In England, for example, have not all 
who bought land for the last, century 
or more, given value not only for the 
existing income, but for the prospects 
of increase, under an implied assurance 
of being only taxed in the same pro¬ 
portion with other incomes? This 
objection, in so far as valid, has a dif¬ 
ferent degree of validity in different 
countries; depending on the degree of 
desuetude into which society has al¬ 
lowed a right to fall, which, as no one 
can doubt, it once fully possessed. In 
most countries of Europe, the right to 
take by taxation, as exigency might 
require, an indefinite portion of the 
rent of land, has never been allowed to 
slumber. In several parts of the Con¬ 
tinent the land-tax forms a large pro¬ 
portion of the public revenues, and has 


always been confessedly liable to be 
raised or lowered without reference to 
other taxes. In these countries no one 
can pretend to have become the owner 
of land on the faith of never being 
called upon to pay an increased land- 
tax. In England the land-tax has not 
varied since the early part of the last 
century. The last act of the legisla¬ 
ture in relation to its amount, was to 
diminish it: and though the subse¬ 
quent increase in the rental of the 
country has been immense, not only 
from agriculture, but from the growth 
of towns and the increase of buildings, 
the ascendancy of landholders in the 
legislature has prevented any tax from 
being imposed, as it so justly might, 
upon the very large portion of this in¬ 
crease which was unearned, and, as it 
were, accidental. For the expectations 
thus raised, it appears to me that an 
amply sufficient allowance is made, if 
the whole increase of income which has 
accrued during this long period from a 
mere natural law, without exertion or 
sacrifice, is held sacred from any pe¬ 
culiar taxation. From the prevent 
date, or any subsequent time at which 
the legislature may think fit to assert 
the principle, I see no objection to 
declaring that the future increment of 
rent should be liable to special taxa¬ 
tion ; in doing which all injustice to 
the landlords would be obviated, if the 
present market-price of their land were 
secured to them; since that includes 
the present value of all future expecta¬ 
tions. With reference to such a tax, 
perhaps a safer criterion than either a 
rise of rents or a rise of the price of 
corn, would be a general rise in the 
price of land. It would be easy to 
keep the tax within the amount which 
would reduce the market-value of land 
below the original valuation: and up 
to that point, whatever the amount of 
the tax might be, no injustice would 
be done to the proprietors. 

§ 6. But whatever may be thought 
of the legitimacy of making the State 
a sharer in all future increase of rent 
from natural causes, the existing land- 
tax (which in this country unfortu¬ 
nately is very small) ought not to be 





494 BOOK V. CHAPTER II. § 7. 


regarded as a tax, but as a rent-charge 
in favour of the public; a portion of the 
rent, reserved from the beginning by 
the State, which has never belonged 
to or formed part of the income of the 
landlords, and should not therefore be 
counted to them as part of their taxa¬ 
tion, so as to exempt them from their 
fair share of every other tax. As well 
might the tithe be regarded as a tax 
on the landlords: as well, in Bengal, 
where the State, though entitled to 
the whole rent of the land, gave away 
one-tenth of it to individuals, retaining 
the other nine-tenths, might those 
nine-tenths be considered as an un¬ 
equal and unjust tax on the grantees 
of the tenth. That a person owns 
part of the rent, does not make the 
rest of it his just right, injuriously 
withheld from him. The landlords 
originally held their estates subject to 
feudal burthens, for which the present 
land-tax is an exceedingly small equi¬ 
valent, and for their relief from which 
they should have been required to pay 
a much higher price. All who have 
bought land since the tax existed have 
bought it subject to the tax. There 
is not the smallest pretence for looking 
upon it as a payment exacted from the I 
existing race of landlords. 

These observations are applicable to j 
a land-tax, only in so far as it is a pe- j 
culiar tax, and not when it is merely a j 
mode of levying from the landlords the j 
equivalent of what is taken from other j 
classes. In France, for example, there j 
are peculiar taxes on other kinds of! 
property and income (the mobilier and i 
the patente), and supposing the land- 
tax to be not more than equivalent to 
these, there would be no ground for 
contending that the state had reserved 
to itself a rent-charge on the land. 
But wherever and in so far as income 
derived from land is prescriptivcly j 
subject to a deduction for public pur- j 
poses, beyond the rate of taxation j 
levied on other incomes, the surplus is j 
not properly taxation, but a share of 
the property in the soil, reserved by 
the state. In this country there are no j 
peculiar taxes on other classes, corre- I 
spending to, or intended to countervail, j 
the land-tax. The whole of it, there- ! 


fore, is not taxation but a rent-charge, 
and is as if the state had retained, not 
a portion of the rent, but a portion of 
the land. It is no more a burthen on 
the landlord, than the share of one 
joint tenant is a burthen on the other. 
The landlords are entitled to no com¬ 
pensation for it, nor have they any 
claim to its being allowed for, as part 
of their taxes. Its continuance on the 
| existing footing is no infringement of 
the principle of Equal Taxation.* 

We shall hereafter consider, in treat¬ 
ing of Indirect Taxation, how far, and 
with what modifications, the rule of 
equality is applicable to that depart¬ 
ment. 

§ 7. In addition to the preceding 
rules, another general rule of taxation 
is sometimes laid down, namely, that 
it should bill on income, and not on 
capital. That taxation should not en¬ 
croach upon the amount of the national 
capital, is indeed of the greatest im¬ 
portance ; but this encroachment, when 
it occurs, is not so much a consequence 
of any particular mode of taxation, as 
of its excessive amount. Over-taxation, 
carried to a sufficient extent, is quite 
capable of ruining the most industrious 
community, especially when it is in any 
degree arbitrary, so that the payer is 
never certain how much or how little 
he shall be allov'ed to keep; or when it 
is so laid on as to render industry 
and economy a bad calculation. But if 
these errors be avoided, and the amount 
of taxation be not greater than it is at 
present even in the most heavily taxed 
country of Europe, there is no danger 
lest it should deprive the country of a 
portion of its capital. 

To provide that taxation shall fall 
entirely on income, and not at all on 
capital, is beyond the power of any 

* The same remarks obviously apply to 
those local taxes, of the peculiar pressure of 
which on lauded property so much has been 
said by the remnant of the Protectionists. 
As much of these burthens as is of old stand¬ 
ing, ought to be regarded as a prescriptive 
deduction or reservation, for public purposes, 
of a portion of the rent. And any recent 
additions have either been iucurred for the 
benefit of the owners of landed property, or 
occasioned by their fault: in neither case 
giving them any just ground of complaiut. 






DIRECT TAXES. 


495 


system of fiscal arrangements. There 
is no tax which is not partly paid from 
what would otherwise have been saved; 
no tax, the amount of which, if remit¬ 
ted, would be wholly employed in in¬ 
creased expenditure, and no part what¬ 
ever laid by as an addition to capital. 
All taxes, therefore, are in some sense 
partly paid out of capital; and in a 
poor country it is impossible to impose 
any tax which will not impede the in¬ 
crease of the national wealth. But in 
a country where capital abounds, and 
the spirit of accumulation is strong, 
this effect of taxation is scarcely felt. 
Capital having reached the stage in 
which, were it not for a perpetual suc¬ 
cession of improvements in production, 
any further increase would soon be 
stopped—and haying so strong a 
tendency even to outrun those improve¬ 
ments, that profits are only kept above 
the minimum by emigration of capital, 
or by a periodical sweep called a com¬ 
mercial crisis ; to take from capital by 
taxation what emigration would re¬ 
move, or a commercial crisis destroy, is 
only to do what either of those causes 
would have done, namely, to make a 
clear space for further saving. 

I cannot, therefore, attach any im¬ 
portance, in a wealthy country, to the 
objection made against taxes on lega¬ 
cies and inheritances, that they are 
taxes on capital. It is perfectly true 
that they are so. As Ricardo observes, 
if 100/. are taken from any one in a 
tax on houses or on wine, he will pro¬ 
bably save it, or a part of it, by living 
in a cheaper house, consuming less 
wine, or retrenching from some other 
of his expenses : but if the same sum 
be taken from him because he has re- 


i ceived a legacy of 1000/., he considers 
| the legacy as only 900/.. and feels no 
more inducement than at any other 
1 time (probably feels rather less in¬ 
ducement) to economize in his expcndi- 
; time. The tax, therefore, is wholly paid 
out of capital: and there are countries 
in which this would be a serious objec- 
1 tion. But in the first place, the ar¬ 
gument cannot apply to any country 
which has a national debt, and devotes 
any portion of revenue to paying it off; 
since the produce of the tax, thus 
applied, still remains capital, and is 
merely transferred from the tax-payer 
to the fundholder. But the objection 
is never applicable in a country 
which increases rapidly in wealth. 
The amount which v’ould be derived, 
even from a very high legacy duty, in 
each year, is but a small fraction of 
the annual increase of capital in such a 
country; and its abstraction would but 
make room for saving to an equivalent 
amount: while the effect of not taking 
it, is to prevent that amount of saving, 
or cause the savings when made, to be 
sent abroad for investment. A country 
which, like England, accumulates capi¬ 
tal not only for itself, but for half the 
world, may be said to defray the whole 
of its public expenses from its over¬ 
flowings ; and its ivealth is probably at 
j this moment as great as if it had no 
| taxes at all. What its taxes really do 
| is, to subtract from its means, not of 
production but of enjoyment; since 
whatever any one pays in taxes, he 
could, if it were not taken for that 
purpose, employ in indulging his ease, 
or in gratifying some want or taste 
which at present remains unsatisfied. 


CHAPTER III. 


OF DIRECT TAXES. 


§ 1. Taxes are either direct or in¬ 
direct. A direct tax is one which is 
demanded from the very persons who, 
it is intended or desired, should pay it. 


Indirect taxes are those which are 
demanded from one person in the ex¬ 
pectation and intention that he shall 
indemnify himself at the expense of 










496 BOOK V. CHAPTER III. §§ 2, 3. 


another: such as the excise or customs. 
The producer or importer of a com¬ 
modity is called upon to pay a tax on it, 
not with the intention to levy a peculiar 
contribution upon him, but to tax 
through him the consumers of the com¬ 
modity, from whom it is supposed that 
he will recover the amount by means 
of an advance in price. 

Direct taxes are either on income, 
or on expenditure. Most taxes on ex¬ 
penditure are indirect, but some are 
direct, being imposed, not on the pro¬ 
ducer or seller of an article, but imme¬ 
diately on the consumer. A house-tax, 
for example, is a direct tax on expendi¬ 
ture, if levied, as it usually is, on the 
occupier of the house. If levied on the 
builder or owner, it would be an in¬ 
direct tax A window-tax is a direct 
tax on expenditure ; so are the taxes 
on horses and carriages, and the rest 
of what are called the assessed taxes. 

The sources of income are rent, 
profits, and wages. This includes 
every sort of income, except gift or 
plunder. Taxes may be laid on any 
one of the three kinds of income, or an 
uniform tax on all of them. We will 
consider these in their order. 

§ 2. A tax on rent falls wholly on 
the landlord. There are no means by 
which he can shift the burthen upon 
any one else. It does not affect the 
value or price of agricultural produce, 
for this is determined by the cost of 
production in the most unfavourable 
circumstances, and in those circum¬ 
stances, as we have so often demon¬ 
strated, no rent is paid. A tax on rent, 
therefore, has no effect, other than its 
obvious one. It merely takes so much 
from the landlord, and transfers it to 
the state. 

This, however, is, in strict exact¬ 
ness, only true of the rent which is the 
result either of natural causes, or of im¬ 
provements made by tenants. When 
the landlord makes improvements 
which increase the productive power 
of his land, he is remunerated for them 
by an extra payment from the tenant; 
and this payment, which to the land¬ 
lord is properly a profit on capital, is 
blended and confounded with rent; 


w'hich indeed it really is, to the tenant, 
and in respect of the economical laws 
which determine its amount. A tax on 
rent, if extending to this portion of 
it, would discourage landlords from 
making improvements : but it does not 
follow that it would raise the price of 
agricultural produce. The same im¬ 
provements might be made w'ith the 
tenant’s capital, or even with the land¬ 
lord’s if lent by him to the tenant; pro¬ 
vided he is willing to give the tenant 
so long a lease as will enable him to 
indemnify himself before it expires. 
But whatover hinders improvements 
from being made in the manner in 
which people prefer to make them, will 
often prevent them from being made 
at all: and on this account a tax on 
rent would be inexpedient, unless some 
means could be devised of excluding 
from its operation that portion of the 
nominal rent which may be regarded 
as landlord’s profit. This argument, 
however, is not needed for the con¬ 
demnation of such a tax. A peculiar 
tax on the income of any class, not 
balanced by taxes on other classes, is a 
violation of justice, and amounts to a 
partial confiscation. I have already 
shown grounds for excepting from this 
censure a tax which, sparing existing 
rents, should content itself with appro¬ 
priating a portion of any future increase 
arising from the mere action of natural 
causes. But even this could not be 
justly done, without offering as an al¬ 
ternative the market price of the land. 
In the case of a tax on rent which is 
not peculiar, but accompanied by an 
equivalent tax on other incomes, the 
objection grounded on its reaching the 
profit arising from improvements is 
less applicable: since, profits being 
taxed as well as rent, the profit which 
assumes the form of rent is liable to its 
share in common with other profits ; 
but since profits altogether ought, for 
reasons formerly stated, to be taxed 
somewhat lower than rent properly so 
called, the objection is only diminished, 
not removed. 

§ 3. A tax on profits, like a tax on 
rent, must, at least in its immediate 
operation, fall wholly on the payer. 



DIRECT 

All profits being alike affected, no 
relief can be obtained by a change of 
employment. If a tax were laid on the 
profits of any one branch of productive 
employment, the tax would be virtually 
an increase of the cost of production, 
and the value and price of the article 
would rise accordingly ; by which the 
tax would be thrown upon the con¬ 
sumers of the commodity, and would 
not affect profits. But a general and 
equal tax on all profits would not 
affect general prices, and would fall, at 
least in the first instance, on capitalists 
alone. 

There is, however, an ulterior effect, 
which, in a rich and prosperous country, 
requires to be taken into account. 
When the capital accumulated is so 
great, and the rate of annual accumu¬ 
lation so rapid, that the country is 
only kept from attaining the stationary 
state by the emigration of capital, or 
by continual improvements in produc¬ 
tion ; any circumstance which virtually 
lowers the rate of profit, cannot be 
without a decided influence on these 
phenomena. It may operate in differ¬ 
ent ways. The curtailment of profit, 
and the consequent increased difficulty 
in making a fortune or obtaining a sub¬ 
sistence by the employment of capital, 
may act as a stimulus to inventions, 
and to the use of them when made. If 
improvements in production are much 
accelerated, and if these improvements 
cheapen, directly or indirectly, any of 
the things habitually consumed by the 
labourer, profits may rise, and rise 
sufficiently to make up for all that is 
taken from them by the tax. In that 
case the tax will have been realized 
without loss to any one, the produce 
of the country being increased by an 
equal, or wliat would in that case be a 
far greater amount. The tax, however, 
must even in this case be considered as 
paid from profits, because the receivers 
of profits are those who would be bene¬ 
fited if it were taken off. 

But though the artificial abstraction 
of a portion of profits would have a 
real tendency to accelerate improve¬ 
ments in production, no considerable 
improvements might actually result, 
or only of such a kind as not to raise 
P.E. 


TAXES. , 497 

general profits at all, or not to raise 
them so much as the tax had dimi¬ 
nished them. If so, the rate of profit 
would be brought closer to that practi¬ 
cal minimum, to which it is constantly 
approaching: and this diminished re¬ 
turn to capital would either give a de¬ 
cided check to further accumulation, or 
would cause a greater proportion than 
before of the annual increase to be sent 
abroad, or wasted in unprofitable spe¬ 
culations. At its first imposition the 
tax falls wholly on profits: but the 
amount of increase of capital, which 
the tax prevents, would, if it had been 
allowed to continue, have tended to re¬ 
duce profits to the same level; and at 
every period of ten or twenty years 
there will be found less difference be¬ 
tween profits as they are, and profits as 
they would in that case have been : 
until at last there is no difference, and 
the tax is thrown either upon the la¬ 
bourer or upon the landlord. The real 
effect of a tax on profits is to make the 
country possess at any given period, & 
smaller capital and a smaller aggregate 
production, and to make the stationary 
state be attained earlier, and with a 
smaller sum of national wealth. It is 
possible that a tax on profits might 
even diminish the existing capital of 
the country. If the rate of profit is 
already at the practical minimum, that 
is, at the point at which all that portion 
of the annual increment which would 
tend to reduce profits is carried off 
either by exportation or by specula¬ 
tion ; then if a tax is imposed which 
reduces profits still lower, the same 
causes which previously carried off the 
increase would probably carry off a 
portion of the existing capital. A tax 
on profits is thus, in a state of capital 
and accumulation like that in England, 
extremely detrimental to the national 
wealth. And this effect is not con¬ 
fined to the case of a peculiar, and 
therefore intrinsically unjust, tax on 
profits. The mere fact that profits 
have to bear their share of a heavy 
general taxation, tends, in the same 
manner as a peculiar tax, to drive 
capital abroad, to stimulate imprudent 
speculations by diminishing safe gains, 
to discourage further accumulation, 

K K 





BOOK V. CHAPTER III. § 4. 


498 

and to accelerate the attainment of the 
stationary state. This is thought to 
have been the principal cause of the 
decline of Holland, or rather of her 
having ceased to make progress. 

Even in countries which do not accu¬ 
mulate so fast as to be always within 
a short interval of the stationary state, 
it seems impossible that, if capital is 
accumulating at all, its accumulation 
should not be in some degree retarded 
by the abstraction of a portion of its 
profit; and unless the effect in stimu¬ 
lating improvements be a full counter¬ 
balance, it is inevitable that a part of the 
burthen will be thrown off the capital¬ 
ist, upon the labourer or the landlord. 
One or other of these is always the 
loser by a diminished rate of accumu¬ 
lation. If population continues to in¬ 
crease as before, the labourer suffers : 
if not, cultivation is checked in its ad¬ 
vance, and the landlords lose the acces¬ 
sion of rent which would have accrued 
to them. The only countries in which 
a tax on profits seems likely to be per¬ 
manently a burthen on capitalists ex¬ 
clusively, are those in which capital is 
stationary, because there is no new 
accumulation. In such countries the 
tax might not prevent the whole capi¬ 
tal from being kept up through habit, 
or from unwillingness to submit to im¬ 
poverishment, and so the capitalist 
might continue to bear the whole of 
the tax. It is seen from these consi¬ 
derations that the effects of a tax on 
profits are much more complex, more 
various, and in some points more un¬ 
certain, than writers on the subject 
have commonly supposed. 

§ 4. We now turn to Taxes on 
Wages. The incidence of these is very 
different, according as the wages taxed 
are those of ordinary unskilled labour, 
or are the remuneration of such skilled 
or privileged employments, whether 
manual or intellectual, as are taken 
out of the sphere of competition by a 
natural or conferred monopoly. 

I have already remarked, that in the 
present low state of popular education, 
all the higher grades of mental or edu¬ 
cated labour are at a monopoly price ; 
exceeding the wages of common work¬ 


men in a degree very far beyond that 
which is due to the expense, trouble, 
and loss of time required in qualifying 
for the employment. Any tax levied 
on these gains, which still leaves them 
above (or not below) their just propor¬ 
tion, falls on those who pay it; they 
have no means of relieving themselves 
at the expense of any other class. The 
same thing is true of ordinary wages, 
in cases like that of the United States, 
or of a new colony, where, capital in¬ 
creasing as rapidly as population can 
increase, wages are kept up by the in¬ 
crease of capital, and not by the ad¬ 
herence of the labourers to a fixed stan¬ 
dard of comforts. In such a case, some 
deterioration of their condition, whether 
by a tax or otherwise, might possibly 
take place without checking the in¬ 
crease of population. The tax would 
in that case fall on the labourers them¬ 
selves, and would reduce them prema¬ 
turely to that lower state to which, on 
the same supposition with regard to 
their habits, they would in any case 
have been reduced vdtimately, by the 
inevitable diminution in the rate of in¬ 
crease of capital, through the occupa¬ 
tion of all the fertile land. 

Some will object that, even in this 
case, a tax on wages cannot be detri¬ 
mental to the labourers, since the 
money raised by it, being expended in 
the country, comes back to the labourers 
again through the demand for labour. 
The fallacy, however, of this doctrine 
has been so completely exhibited in the 
First Book,* that I need do little more 
than refer to that exposition. It was 
there shown that funds expended un- 
productively have no tendency to raise 
or keep up wages, unless when ex¬ 
pended in the direct purchase of labour. 
If the government took a tax of a 
shilling a week from every labourer, 
and laid it all out in hiring labourers 
for military service, public works, or 
the like, it would, no doubt, indemnify 
the labourers as a class for all that the 
tax took from them. That would 
really be “ spending the money among 
the people.” But if it expended the 
whole in buying goods, or in adding to 
the salaries of employes who bought 
* Supra, pp. 49-55. 




DIRECT 

goods with it, this would not increase 
the demand for labour, or tend to raise 
wages. Without, however, reverting 
to general principles, we may rely on 
an obvious reductio ad. absurdum. If 
to take money from the labourers and 
spend it in commodities is giving it 
back to the labourers, then, to take 
money from other classes, and spend it 
in the same manner, must be giving it 
to the labourers; consequently, the 
more a government takes in taxes, the 
greater will be the demand for labour, 
and the more opulent the condition of 
the labourers. A proposition the ab¬ 
surdity of which no one can foil to see. 

In the condition of most communi¬ 
ties, wages are regulated by the habi¬ 
tual standard of living to which the 
labourers adhere, and on less than 
which they will not multiply. Where 
there exists such a standard, a tax on 
wages will .indeed for a time be borne 
by the labourers themselves ; but unless 
this temporary depression has the 
effect of lowering the standard itself, 
the increase of population will receive 
a check, which will raise wages, and 
restore the labourers to their previous 
condition. On whom, in this case, will 
the tax fall? According to Adam 
Smith, on the community generally, 
in their character of consumers ; since 
the rise of wages, he thought, would 
raise general price's. We have seen, 
however, that general prices depend 
on other causes, and are never raised 
by any circumstance which affects all 
kinds of productive employment in the 
same manner and degree. A rise of 
wages occasioned by a tax, must, like 
any other increase of the cost of labour, 
be defrayed from profits. To attempt 
to tax day-labourers, in an old country, 
is merely to impose an extra tax upon 
all employers of common labour; unless 
the tax has the much worse effect of 
permanently lowering the standard of 
comfortable subsistence in the minds 
of the poorest class. 

We find in the preceding considera¬ 
tions an additional argument for the 
opinion already expressed, that direct 
taxation should stop short of the class 
of incomes which do not exceed what 
is necessary for healthful existence. 


TAXES. 499 

These very small incomes are mostly 
derived from manual labour; and, as 
we now see, any tax imposed on these, 
either permanently degrades the habits 
of the labouring class, or falls on pro¬ 
fits,. and burthens capitalists with an 
indirect tax, in addition to their share 
of the direct taxes; which is doubly 
objectionable, both as a violation of the 
fundamental rule of equality, and for 
the reasons which, as already shown, 
render a peculiar tax on profits detri¬ 
mental to the public wealth, and con¬ 
sequently to the means which society 
possesses of paying any taxes whatever. 

§ 5. We now pass, from taxes on 
the separate kinds of income, to a tax 
attempted to be assessed fairly upon 
all kinds ; in other words, an Income 
Tax. The discussion of the conditions 
necessary for making this tax consis¬ 
tent with justice, has been anticipated 
in the last chapter. We shall suppose, 
therefore, that these conditions are com¬ 
plied with. They are, first, that in¬ 
comes below a certain amount should 
be altogether untaxed. This minimum 
should not be higher than the amount 
which suffices for the necessaries of the 
existing population. The exemption 
from the present income-tax, of all in¬ 
comes under 100Z. a year, and the lower 
percentage levied on those between 
100Z. and 150Z., are only defensible on 
the ground that almost all the indirect 
taxes press more heavily on incomes 
between 50£. and 150 1. than on any 
others whatever. The second condi¬ 
tion is, that incomes above the limit 
should be taxed only in proportion to 
the surplus by which they exceed the 
limit. Thirdly, that all sums saved 
from income and invested, should be 
exempt from the tax: or if this be 
found impracticable, that life incomes 
and incomes from business and profes¬ 
sions should be less heavily taxed than 
inheritable incomes, in a degree as 
nearly as possible equivalent to the in¬ 
creased need of economy arising from 
their terminable character: allowance 
being also made, in the case of variable 
incomes, for their precariousness. 

An income-tax, fairly assessed on 
these principles, would be, in point of 

K K 2 



500 BOOK V. CHAPTER III. § 5. 


justice, the least exceptionable of all 
taxes. The objection to it, in the pre¬ 
sent low state of public morality, is the 
impossibility of ascertaining the real 
incomes of the contributors. The sup¬ 
posed hardship of compelling people to 
disclose the amount of their incomes, 
ought not, in my opinion, to count for 
much. One of the social evils of this 
country is the practice, amounting to a 
custom, of maintaining, or attempting 
to maintain, the appearance to the 
world of a larger income than is pos¬ 
sessed ; and it would be far better for 
the interests of those Avho yield to this 
weakness, if the extent of their means 
were universally and exactly known, 
and the temptation removed to expend¬ 
ing more than they can afford, or stint¬ 
ing real wants in order to make a false 
show externally. At the same time, 
the reason of the case, even on this 
paint, is not so exclusively on one side 
of the argument as is sometimes sup¬ 
posed. So long as the vulgar of any 
country are in the debased state of 
mind which this national habit presup¬ 
poses—so long as their respect (if such 
a word can be applied to it) is pro¬ 
portioned to what they suppose to be 
each person’s pecuniary means—it may 
be doubted whether anything which 
would remove all uncertainty as to that 
point, would not considerably increase 
the presumption and arrogance of the 
vulgar rich, and their insolence towards 
those above them in mind and charac¬ 
ter, but below them in fortune. 

Notwithstanding, too, what is called 
the inquisitorial nature of the tax, no 
amount of inquisitorial power which 
would be tolerated by a people the 
most disposed to submit to it, could 
enable the revenue officers to assess 
the tax from actual knowledge of the 
circumstances of contributors. Rents, 
salaries, annuities, and all fixed in¬ 
comes, can be exactly ascertained. 
But the variable gains of professions, 
and still more the profits of business, 
which the person interested cannot 
always himself exactly ascertain, can 
still less be estimated with any ap¬ 
proach to fairness by a tax-collector. 
The main reliance must be placed, 
and always has been placed, on the re¬ 


turns made by the person himself. 
No production of accounts is of much 
avail, except against the more flagrant 
cases of falsehood; and even against 
these the check is very imperfect, for 
if fraud is intended, false accounts can 
generally be framed which it will baffle 
any means of inquiry possessed by the 
revenue officers to detect: the easy re¬ 
source of omitting entries on the credit 
side being often sufficient without the 
aid of fictitious debts or disbursements. 
The tax, therefore, on whatever prin¬ 
ciples of equality it may be imposed, 
is in practice unequal in one of the 
worst ways, falling heaviest on the 
most co iseicntious. The unscrupulous 
succeed in evading a great proportion 
of what they should pay; even persons 
of integrity in their ordinary transac¬ 
tions are tempted to palter with their 
consciences, at least to the extent of 
deciding in their own favour all points 
on which the smallest doubt or dis¬ 
cussion could arise : while the strictly 
veracious may be made to pay more 
than the state intended, by the powers 
of arbitrary assessment necessarily in¬ 
trusted to the Commissioners as the 
last defence against the tax-payer’s 
power of concealment. 

It is to be feared, therefore, that the 
fairness which belongs to the principle 
of an income-tax, cannot be made to 
attach to it in practice: and that this 
tax, while apparently the most just 
of all modes of raising a revenue, is in 
effect more unjust than many others 
which are prima facie more objection¬ 
able. This consideration would lead 
us to concur in the opinion which, until 
of late, has usually prevailed—that 
direct taxes on income should be re¬ 
served as an extraordinary resource for 
great national emergencies, in which 
the necessity of a large additional re¬ 
venue overrules all objections. 

The difficulties of a fair income-tax 
have elicited a proposition for a direct 
tax of so much per cent, not on income 
but on expenditure; the aggregate 
amount of each person’s expenditure 
being ascertained, as the amount of 
income now is, from statements fur¬ 
nished by the contributors themselves. 
r lhe author of this suggestion, Mr. 




DIRECT 

Revans, in a clever pamphlet on the 
subject,* contends that the returns 
which persons would furnish of their 
expenditure would he more trustworthy 
than those which they now make of 
their income, inasmuch as expenditure 
is in its own nature more public than 
income, and false representations of it 
more easily detected. He cannot, I 
think, have sufficiently considered, how 
few of the items in the annual expen¬ 
diture of most families can be judged 
of with any approximation to correct¬ 
ness from the external signs. The only 
security would still be the veracity of 
individuals, and there is no reason for 
supposing that their statements would 
be more trustworthy on the subject of 
their expenses than on that of their re¬ 
venues ; especially as, the expenditure 
of most persons being composed of 
many more items than their income, 
there would be more scope for conceal¬ 
ment and suppression in the detail of 
expenses than even of receipts. 

The taxes on expenditure at present 
in force, either in this or in other coun¬ 
tries, fall only cn particular kinds of 
expenditure, and differ no otherwise 
from taxes on commodities than in 
being paid directly by the person who 
consumes or uses the article, instead 
of being advanced by the producer or 
seller, and reimbursed in the price. 
The taxes on horses and carriages, on 
dogs, on servants, are of this nature. 
They evidently fall on the persons from 
whom they are levied—those who use 
the commodity taxed. A tax of a simi¬ 
lar description, and more important, is 
a house-tax : which must be considered 
at somewhat greater length. 

§ 6. The rent of a house consists of 
two parts, the ground-rent, and what 
Adam Smith calls the building-rent. 
The first is determined by the ordinary 
principles of rent. It is the remunera¬ 
tion given for the use of the portion of 
land occupied by the house and its ap¬ 
purtenances ; and varies from a mere 
equivalent for the rent which the ground 

* A "Percentage Tax on Domestic Expendi¬ 
ture to supply the whole of the Public 
Jtevenue. B j John Sevang. Published by 
Hatchard, in 1847. 


TAXES. 501 

would afford in agriculture, to the mono¬ 
poly rents paid for advantageous situa¬ 
tions in populous thoroughfares. The 
rent of the house itself, as distinguished 
from the ground, is the equivalent given 
for the labour and capital expended on 
the building. The fact of its being re¬ 
ceived in quarterly or half-yearly pay¬ 
ments, makes no difference in the prin¬ 
ciples by which it is regulated. It 
comprises the ordinary profit on the 
builder’s capital, and an annuity, suffi¬ 
cient at the current rate of interest, 
after paying for all repairs chargeable 
on the proprietor, to replace the original 
capital by the time the house is worn 
out, or by the expiration of the usual 
term of a building lease. 

A tax of so much per cent on the 
gross rent, falls on both those portions 
alike. The more highly a house is 
I'ented, the more it pays to the tax, 
whether the quality of the situation or 
that of the house itself is the cause. 
The incidence, however, of these two 
portions of the tax must be considered 
separately. 

As much of it as is a tax on build¬ 
ing-rent, must ultimately fall on the 
consumer, in other words the occupier. 
For as the profits of building are al¬ 
ready not above the ordinary rate, they 
would, if the tax fell on the owner and 
not on the occupier, become lower than 
the profits of untaxed employments, 
and houses would not be built. It is 
probable however that for some time 
after the tax was first imposed, a great 
part of it would fall, not on the renter, 
but on the owner of the house. A large 
proportion of the consumers either could 
not afford, or would not choose, to pay 
their former rent with the tax in ad¬ 
dition, but would content themselves 
with a lower scale of accommodation. 
Houses therefore would be for a time 
in excess of the demand. The conse¬ 
quence of such excess, in the case of 
most other articles, would be an al¬ 
most immediate diminution of the sup¬ 
ply : but so durable a commodity as 
houses does not rapidly diminish in 
amount. New buildings indeed, of the 
class for which the demand had de¬ 
creased, would cease to be erected, ex¬ 
cept for special reasons; but in the 



BOOK V. CHAPTER TIL § 6. 


502 

meantime the temporary superfluity 
would lower rents, and the consumers 
would obtain, perhaps, nearly the same 
accommodation as formerly, for the 
same aggregate payment, rent and 
tax together. By degrees, however, 
as the existing houses wore out, or as 
increase of population demanded a 
greater supply, rents would again rise ; 
until it became profitable to recom¬ 
mence building, which would not be 
until the tax was wholly transferred 
to the occupier. In the end, therefore, 
the occupier bears that portion of a 
tax on rent, which falls on the payment 
made for the house itself, exclusively 
of the ground it stands on. 

The case is partly different with the 
portion which is a tax on ground-rent. 
As taxes on rent, properly so called, 
fall on the landlord, a tax on ground- 
rent, one would suppose, must fall on 
the ground-landlord, at least after the 
expiration of the building lease. It 
will not however fall wholly on the 
landlord, unless with the tax on ground- 
rent there is combined an equivalent 
tax on agricultural rent. The lowest 
rent of land let for building is very 
little above the rent which the same 
ground would yield in agriculture: 
since it is reasonable to suppose that 
land, unless in case of exceptional cir¬ 
cumstances, is let or sold for building 
as soon as it is decidedly worth more 
for that purpose than for cultivation. 
If, therefore, a tax were laid on ground- 
rents without being also laid on agri¬ 
cultural rents, it would, unless of trifling 
amount, reduce the return from the 
lowest ground-rents below the ordinary 
return from land, and would check fur¬ 
ther building quite as effectually as if 
it were a tax on building-rents, until 
either the increased demand of a grow¬ 
ing population, or a diminution of sup¬ 
ply by the ordinary causes of destruc¬ 
tion, had raised the rent by a full 
equivalent for the tax. But whatever 
raises the lowest ground-rents, raises 
all others, since each exceeds the 
lowest by the market value of its 
peculiar advantages. If, therefore, the 
tax on ground-rents were a fixed sum 
per square foot, the more valuable 
situations paying no more than those 


least in request, this fixed payment 
would ultimately fall on the occupier. 
Suppose the lowest ground-rent to be 
10Z. per acre, and the highest 1000Z., a 
tax of 1Z. per acre on ground-rents 
would ultimately raise the former to 
11Z., and the latter consequently to 
100 lZ., since the difference of value 
between the two situations would be 
exactly what it was before: the annual 
pound, therefore, would be paid by the 
occupier. But a tax on ground-rent is 
supposed to be a portion of a house-tax, 
which is not a fixed payment, but a 
percentage on the rent. The cheapest 
site, therefore, being supposed as before 
to pay lZ., the dearest would pay 100Z., 
of which only the lZ. could be thrown 
upon the occupier, since the rent would 
still be only raised to 1001Z. Conse¬ 
quently, 99Z. of the 100Z. levied from 
the expensive eite, would fall on the 
ground-landlord. A house-tax thus re¬ 
quires to be considered in a double 
aspect, as a tax on all occupiers of 
houses, and a tax on ground-rents. 

In the vast majority of houses, the 
ground-rent forms but a small propor¬ 
tion of the annual payment made for 
the house, and nearly all the tax falls 
on the occupier. It is only in ex¬ 
ceptional cases, like that of the fa¬ 
vourite situations in large towns, that 
the predominant element in the rent 
of the house is the ground-rent; and 
among the very few kinds of income 
which are fit subjects for peculiar taxa¬ 
tion, these ground-rents hold the prin¬ 
cipal place, being the most gigantic 
example extant of enormous accessions 
of riches acquired rapidly, and in many 
cases unexpectedly, by a few families, 
from the mere accident of their pos¬ 
sessing certain tracts of land, without 
their having themselves aided in the 
acquisition by the smallest exertion, 
outlay, or risk. So far therefore as a 
house-tax falls on the ground landlord, 
it is liable to no valid objection. 

In so far as it falls on the occupier, 
if justly proportioned to the value of 
the house, it is one of the fairest and 
most unobjectionable of all taxes. No 
part of a person’s expenditure is a 
better criterion of his means, or bears, 
on the whole, more nearly the same 



DIRECT 

proportion to them. A house-tax is a 
nearer approach to a fair income-tax, 
than a direct assessment on income 
can easily he; having the great ad¬ 
vantage, that it makes spontaneously 
all the allowances which it is so diffi¬ 
cult to make, and so impracticable to 
make exactly, in assessing an income- 
tax : for if what a person pays in house- 
rent is a test of anything, it is a test 
not of what he possesses, hut of what 
he thinks he can afford to spend. The 
equality of this tax can only he seri¬ 
ously questioned on two grounds. The 
first is, that a miser may escape it. 
This objection applies to all taxes on 
expenditure: nothing hut a direct tax 
on income can reach a miser. But as 
misers do not now hoard their treasure, 
hut invest itin productive employments, 
it not only adds to the national wealth, 
and consequently to the general means 
of paying taxes, hut the payment claim¬ 
able from itself is only transferred from 
the principal sum to the income after¬ 
wards derived from it, which pays taxes 
as soon as it comes to he expended. 
The second objection is that a person 
may require a larger and more ex¬ 
pensive house, not from having greater 
means, hut from having a larger family. 
Of this, however, he is not entitled to 
complain ; since having a large family 
is at a person’s own choice: and, so 
far as concerns the public interest, is 
a thing rather to he discouraged than 
promoted.* 

* Another common objection is that large 
and expensive accommodation is often re¬ 
quired, not as a residence, but for business. 
But it is an admitted principle that buildings 
or portions of buildings occupied exclusively 
for business, such as shops, warehouses, or 
manufactories, ought to be exempted from 
house-tax. The plea that persons in busi¬ 
ness may bo compelled to live in situations, 
such as the great thoroughfares of London, 
where house-rent is at a monopoly rate, 
seems to me unworthy of regard: since no 
ono does so but because the extra profit 
which he expects to derive from the situation, 
is more than an equivalent to him for the 
extra cost. But in any case, the bulk of the 
tax on this extra rent will not fall on him, but 
on the ground-landlord. 

It has been also objected that house-rent 
in the rural districts is much lower than in 
towns, and lower in some towns and in some 
rural districts than in others : so that a tax 
proportioned to it would have a correspond¬ 
ing inequality of pressure. To this, however , 


TAXES. 503 

A large portion of the taxation of 
this country is raised by a house-tax. 
The parochial taxation of the towns 
entirely, and of the rural districts par¬ 
tially, consists of an assessment on 
house-rent. The window-tax, which 
was also a house-tax, hut of a had 
kind, operating as a tax on light, and 
a cause of deformity in building, was 
exchanged in 1851 for a house-tax pro¬ 
perly so called, hut on a much lower 
scale than that which existed pre¬ 
viously to 1834. It is to he lamented 
that the new tax retains the unjust 
principle on which the old house-tax 
was assessed, and which contributed 
quite as much as the selfishness of the 
middle classes to produce the outcry 
against the tax. The public were 
justly scandalized on learning that re¬ 
sidences like Chatsworth or Belvoir 
were only rated on an imaginary rent 
of perhaps 200/. a year, under the pre¬ 
text that owing to the great expense 
of keeping them up, they could not he 
let for more. Probably, indeed, they 
could not he let even for that, and if 
the argument were a fair one, they 
ought not to have been taxed at all. 
But a house-tax is not intended as a 
tax on incomes derived from houses, 
hut on expenditure incurred for them. 
The tiling which it is wished to ascer¬ 
tain is wliat a house costs to the person 
who lives in it, not what it would 
bring in if let to some one else. When 
the occupier is not the owner, and does 
not hold on a repairing lease, the rent 
he pays is the measure of what the 
house costs him : hut when he is the 
owner, some other measure must he 
sought. A valuation should he made 
of the house, not at what it would sell 
for, hut at what would he the cost of 
rebuilding it, and this valuation might 

it may be answered, that in places where 
house-rent is low, persons of the same 
amount of income usually five in larger and 
better houses, and thus expend in house- 
rent more nearly the same proportion of 
their incomes than might at first sight 
appear. Or if not, the probability will be, 
that many of them live in those places pre¬ 
cisely because they are too poor to live else¬ 
where, and have therefore the strongest 
claim to be taxed lightly. In some cases, it 
is precisely because the people are poor, 
that house-rent remains low 






504 LOOK V. CHAPTER IV. § 1. 


be periodically corrected by an allow¬ 
ance for what it had lost in value by 
time, or gained by repairs and improve¬ 
ments. The amount of the amended 
valuation would form a principal sum, 
the interest of which, at the current 
price of the public funds, would form 
the annual value at which the building 
should be assessed to the tax. 

As incomes below a certain amount 
ought to be exempt from income-tax, 
so ought houses below a certain value, 


from house-tax, on tire universal prin¬ 
ciple of sparing from all taxation the 
absolute necessaries of healthful exist¬ 
ence. In order that the occupiers of 
lodgings, as well as of houses, might 
benefit, as injustice they ought, by this 
exemption, it might be optional with 
the owners to have every portion of a 
house which is occupied by a separate 
tenant, valued and assessed separately, 
as is now usually the case with cham¬ 
bers. 


CHAPTER IV. 

OF TAXES ON COMMODITIES. 


§ 1. By taxes on commodities are 
commonly meant, those which are le¬ 
vied either on the producers, or on the 
carriers or dealers who intervene be¬ 
tween them and the final purchasers 
for consumption. Taxes imposed di¬ 
rectly on the consumers of particular 
commodities, such as a house-tax, or 
the tax in this country on horses and 
carriages, might be called taxes on 
commodities, but are not; the phrase 
being, by custom, confined to indirect 
taxes—those which are advanced by 
one person, to be, as is expected and 
intended, reimbursed by another. 
Taxes on commodities aro either on 
production within the country, or on 
importation into it, or on conveyance 
or sale within it; and are classed re¬ 
spectively as excise, customs, or tolls 
and transit duties. To whichever class 
they belong, and at whatever stage in 
the progress of the community they may 
be imposed, they are equivalent to an 
increase of the cost of production; 
using that term in its most enlarged 
sense, which includes the cost of trans¬ 
port and distribution, or, in common 
phrase, of bringing the commodity to 
market. 

When the cost of production is in¬ 
creased artificially by a tax, the effect 
is the same as when it is increased by 
natural causes. If only one or a few 
commodities are affected their value 


and price rise, so as to compensate the 
producer or dealer for the peculiar bur¬ 
then ; but if there were a tax on all 
commodities, exactly proportioned to 
their value, no such compensation 
would be obtained : there would neither 
be a general rise of values, which is 
an absurdity, nor of prices, which de¬ 
pend on causes entirely different. 
There would, however, as Mr. M'Cul- 
loch has pointed out, be a disturbance 
of values, some falling, others rising, 
owing to a circumstance, the effect of 
which on values and prices we for¬ 
merly discussed ; the different durabi¬ 
lity of the capital employed in different 
occupations. The gross produce of 
industry consists of two parts; one 
portion serving to replace the capital 
consumed, while the other portion i 3 
profit. Now equal capitals in two 
branches of production must have equal 
expectations of profit; but if a greater 
portion of the one than of the other is 
fixed capital, or if that fixed capital is 
more durable, there will be a less con¬ 
sumption of capital in the year, and 
less will be required to replace it, so 
that the profit, if absolutely the same, 
will form a greater proportion of the 
annual returns. To derive from a ca¬ 
pital of 1000Z. a profit of lOOZ., the one 
producer may have to sell produce to 
the value of 1100Z., the other only to 
the value of 500 1 . If on these two 






TAXES ON COMMODITIES. 505 


branches of industry a tax be imposed 
of five per cent ad valorem , the last 
will be charged only with 25 1., the first 
with 55 1 .; leaving to the one 75 1. 
profit, to the other only 45Z. To 
equalize, therefore, their expectation of 
profit, the one commodity must rise in 
price, or the other must fall, or both : 
commodities made chiefly by immediate 
labour must rise in value, as compared 
with those which are chiefly made by 
machinery. It is unnecessary to prose¬ 
cute this branch of the inquiry any 
further. 

§ 2. A tax on any one commodity, 
whether laid on its production, its im¬ 
portation, its carriage from place to 
place, or its sale, and whether the tax 
be a fixed sum of money for a given 
quantity of the commodity, or an ad 
valorem duty, will, as a general rule, 
raise the value and price of the com¬ 
modity by at least the amount of the 
tax. There are few cases in which it 
does not raise them by more than that 
amount. In the first place, there are 
lew taxes on production on account of 
which it is not found or deemed neces¬ 
sary to impose restrictive regulations 
on the manufacturers or dealers, in 
order to check evasions of the tax. 
These regulations are always sources 
of trouble and annoyance, and gene¬ 
rally of expense, for all of which, being 
peculiar disadvantages, the producers 
or dealers must have compensation in 
the price of their commodity'. These 
restrictions also frequently interfere 
with the processes of manufacture, re¬ 
quiring the producer to carry on his 
operations in the way most convenient 
to the revenue, though not the cheapest, 
or most efficient for purposes of produc¬ 
tion. Any regulations whatever, en¬ 
forced by law, make it difficult for the 
producer to adopt new and improved 
processes. Further, the necessity of 
advancing the tax obliges producers 
and dealers to carry on their business 
with larger capitals than would other¬ 
wise be necessary, on the whole of 
which they must receive the ordinary 
rate of profit, though a part only is em¬ 
ployed in defraying the real expenses 
of production or importation. The price 


of the article must be'such as to afford 
a profit on more than its natural value, 
instead of a profit on only its natural 
value. A part of the capital of the 
country, in short, is not employed in 
production, but in advances to the state, 
repaid in the price of goods ; and the 
consumers must give an indemnity to 
the sellers, equal to the profit which 
they could have made on the same 
capital if really employed in produc¬ 
tion.* Neither ought it to be forgotten, 
that whatever renders a larger capital 
necessary in any trade or business, 
limits the competition in that business, 
and by giving something like a mono¬ 
poly to a few dealers, may enable them 
either to keep up the price beyond what 
would afford the ordinary rate of profit, 
or to obtain the ordinary rate of profit 
with a less degree of exertion for im¬ 
proving and cheapening their commo¬ 
dity. In these several modes, taxes on 
commodities often cost to the consumer, 
through the increased price of the ar¬ 
ticle, much more than they bring into 
the treasury of the state. There is 
still another consideration. The higher 
price necessitated by the tax, almost 
always checks the demand for the com¬ 
modity ; and since there are many im¬ 
provements in production which, to 
make them practicable, require a cer¬ 
tain extent of demand, such improve¬ 
ments are obstructed, and many of them 
prevented altogether. It is a well- 
known fact, that the branches of pro¬ 
duction in which fewest improvements 
are made, are tho.se with which the 
revenue officer interferes; and that 
nothing, in general, gives a greater 
impulse to improvements in the pro¬ 
duction of a commodity, than taking 
off a tax which narrowed the market 
for it. 

* It is true, this does not constitute, as it 
at first sight appears to do, a case of taking 
more out of the pockets of the people than 
the state receives; since if the state needs 
the advance, and gets it in this manner, it 
can dispense with an equivalent amount of 
borrowing in stock or exchequer bills. Cut 
it is more economical that the necessities of 
the state should be supplied from the dis- 
posable capital in the hands of the lending 
class, than by an artificial addition to the 
expenses of one or several classes of pro¬ 
ducers or dealers. 





506 BOOK Y. CHAPTER IV. § 3. 


§ 3. Such are the effects of taxes 
on commodities, considered generally; 
but as there are some commodities 
(those composing the necessaries of the 
labourer) of which the values have an 
influence on the distribution of wealth 
among different classes of the commu¬ 
nity, it is requisite to trace the effects 
of taxes on those particular articles 
somewhat farther. If a tax be laid, 
say on corn, and the price rises in pro¬ 
portion to the tax, the rise of price may 
operate in two ways. First: it may 
lower the condition of the labouring 
classes; temporarily indeed it can 
scarcely fail to do so. If it diminishes 
their consumption of the produce of the 
earth, or makes them resort to a food 
which the soil produces more abun¬ 
dantly, and therefore more cheaply, it 
to that extent contributes to throw 
back agriculture upon more fertile lands 
or less costly processes, and to lower 
the value and price of corn ; which 
therefore ultimately settles at a price, 
increased not by the whole amount of 
the tax, but by only a part of its 
amount. Secondly, however, it may 
happen that the dearness of the taxed 
food does not lower the habitual stan¬ 
dard of the labourer’s requirements, 
but that wages, on the contrary, 
through an action on population, rise, 
in a shorter or longer period, so as to 
compensate the labourers for their poi’- 
tion of the tax; the compensation 
being of course at the expense of 
profits. Taxes on necessaries must 
thus have one of two effects. Either 
they lower the condition of the labour¬ 
ing classes ; or they exact from the 
owners of capital, in addition to the 
amount due to the state on their own 
necessaries, the amount due on those 
consumed by the labourers. In the 
last case, the tax on necessaries, like a 
tax on wages, is equivalent to a pecu¬ 
liar tax on profits ; which is, like all 


other partial taxation, unjust, and is 
specially prejudicial to the increase of 
the national wealth. 

It remains to speak of the effect on 
rent. Assuming (what is usually the 
fact) that the consumption of food is 
not diminished, the same cultivation as 
before will be necessary to supply the 
wants of the community; the margin 
of cultivation, to use Dr. Chalmers’ 
expression, remains where it was ; and 
the same land or capital which, as the 
least productive, already regulated the 
value and price of the whole produce, 
will continue to regulate them. The 
effect which a tax on agricultural pro¬ 
duce will have on rent, depends on its 
affecting or not affecting the difference 
between the return to this least pro¬ 
ductive land or capital, and the returns 
to other lands and capitals. Now this 
depends on the manner in which the 
tax is imposed. If it is an ad valorem 
tax, or what is the same thing, a fixed 
proportion of the produce, such as tithe 
for example, it evidently lowers corn- 
rents. For it takes more corn from the 
better lands than from the worse ; and 
exactly in the degree in which they are 
better; land of twice the productive¬ 
ness paying twice as much to the tithe. 
Whatever takes more from the greater 
of two quantities than from the less, 
diminishes the difference between 
them. The imposition of a tithe on 
corn would take a tithe also from corn- 
rent : for if we reduce a series of numbers 
by a tenth each, the differences between 
them are reduced one-tenth. 

For example, let there be five quali¬ 
ties of land, which severally yield, on 
the same extent of ground and Avitli 
the same expenditure, 100, 90, 80, 70, 
and GO bushels of wheat; the last of 
these being the lowest quality which 
the demand for food renders it neces¬ 
sary to cultivate. The rent of these 
lands will be as follows :— 


The land producing 100 bushels will yield a rent of 100—60, or 40 bushels. 

That producing 

90 „ 


90—GO, or 30 

yy 

)) 

80 „ 

>> 

80—60, or 20 

yy 

» 

70 „ 

yy 

70—60, or 10 

yy 


GO „ 

yy 

no rent. 


ow let a tithe be 

imposed, which 

land 

10, 9, S, 7, and 6 

bushels re- 


takes from these five pieces of spectively, the fifth quality still 




TAXES ON COMMODITIES. 507 

being the one -which regulates the after payment of tithe, no more than 
pi ice, but returning to the farmer, 54 bushels: — 

The land producing 100 bushels reduced to 90, will yield a rent of 90—54, or 36 bushels. 
That producing 90 „ 81 ,, 81—54, or 27 ,, 

„ 80 „ 72 „ 72—51, or 18 ,, 

» 70 ,, 63 „ 63—54, or 9 ,, 


and that producing GO bushels, reduced 
to 54, will yield, as before, no rent. So 
that the rent of the first quality of 
land has lost four bushels; of the 
second, three; of the third, two; and 
of the fourth, one: that is, each has 
lost exactly one-tenth. A tax, there¬ 
fore, of a fixed proportion of the pro¬ 
duce, lowers, in the same proportion, 
corn-rent. 

But it is only corn-rent that is 
lowered, and not rent estimated in 
money, or in any other commodity. 
For, in the same proportion as corn- 
rent is reduced in quantity, the corn 
composing it is raised in value. Under 
the tithe, 54 bushels will be worth in 
the market what 60 were before; and 
nine-tenths will in all cases sell for as 
much as the whole ten-tenths previ¬ 
ously sold for. The landlords will 
therefore be compensated in value and 
price for what they lose in quantity; 
and will suffer only so for as they con¬ 
sume their rent in kind, or, after re¬ 
ceiving it in money, expend it in 
agricultural produce: that is, they 
only suffer as consumers of agricultural 
produce, and in common with all the 
other consumers. Considered as land¬ 
lords, they have the same income as 
before ; the tithe, therefore, falls on 
the consumer, and not on the landlord. 

The same effect would be produced 
on rent, if the tax, instead of being a 
fixed proportion of the produce, were a 
fixed sum per quarter or per bushel. A 
tax which takes a shilling for every 
bushel, takes more shillings from one 
field than from another, just in propor¬ 
tion as it produces more bushels ; and 
operates exactly like tithe, except that 
tithe is not only the same proportion 
on all lands, but is also the same pro¬ 
portion at all times, while a fixed sum 
of money per bushel will amount to a 
greater or less proportion, according as 
corn is cheap or dear. 

There are other modes of taxing 


agriculture, which would affect rent 
differently. A tax proportioned to the 
rent would fall wholly on the rent, and 
would not at all raise the price of corn, 
which is regulated by the portion of 
the produce that pays no rent. A tixed 
tax of so much per cultivated acre, 
without distinction of value, would have 
effects directly the reverse. Taking 
no more from the best qualities of land 
than from the worst, it would leave the 
differences the same as before, and con¬ 
sequently the same corn-rents, and the 
landlords would profit to the full extent 
of the rise of price. To put the thing 
in another manner; the price must rise 
sufficiently to enable the worst land to 
pay the tax: thus enabling all lands 
which produce more than the worst, to 
pay not only the tax, but also an in¬ 
creased rent to the landlords. These, 
however, are not so much taxes on the 
produce of land, as taxes on the land 
itself. Taxes on the produce, properly 
so called, whether tixed or ad valorem , 
do not affect rent, but fall on the con¬ 
sumer : profits, however, generally 
bearing either the whole or the greatest 
part of the portion which is levied on 
the consumption of the labouring- 
classes. 

§ 4. The preceding is, 1 appre¬ 
hend, a correct statement of the man¬ 
ner in which taxes on agricultural 
produce operate when first laid on. 
When, however, they are of old stand¬ 
ing, their effect may be different, as 
was first pointed out, I believe, by 
Mr. Senior. It is, as we have seen, an 
almost infallible consequence of any 
reduction of profits, to retard the rate 
of accumulation. Now the effect of 
accumulation, when attended by its 
usual accompaniment, an increase of 
population, is to increase the value and 
price of food, to raise rent, and to 
lower profits: that is, to do precisely 
what is done by a tax on agricultural 





508 


BOOK Y. CHAPTER IV. § 4. 


produce, except that this does not raise 
rent. The tax, therefore, merely anti¬ 
cipates the rise of price, and fall of 
profits, which would have taken place 
ultimately through the mere progress 
of accumulation; while it at the same 
time prevents, or at least retards, that 
progress. If the rate of profit was such, 
previous to the imposition of a tithe, 
that the effect of the tithe reduces it 
to the practical minimum, the tithe 
will put a stop to all further accumu¬ 
lation, or cause it to take place out of 
the country; and the only effect which 
the tithe will then have had on the 
consumer, is to make him pay earlier 
the price which ho would have had to 
pay somewhat later—part of which, 
indeed, in the gradual progress of 
wealth and population, he would have 
almost immediately begun to pay. 
After a lapse of time which would have 
admitted of a rise of one-tenth through 
the natural progress of wealth, the con¬ 
sumer will be paying no more than he 
would have paid if the tithe had never 
existed; he will have ceased to pay 
any portion of it, and the person who 
will really pay it is the landlord, whom 
it deprives of the increase of rent which 
would by that time have accrued to 
him. At every successive point in this 
interval of time, less of the burthen will 
rest on the consumer, and more of it on 
the landlord: and in the ultimate re¬ 
sult, the minimum of profits will be 
reached with a smaller capital and 
population, and a lower rental, than if 
the course of things had not been dis¬ 
turbed by the imposition of the tax. 
If, on the other hand, the tithe or other 
tax on agricultural produce does not 
reduce profits to the minimum, but to 
something above the minimum, accu¬ 
mulation will not be stopped, but only 
slackened: and if population also in¬ 
creases, the twofold increase will con¬ 
tinue to produce its effects—a rise of 
the price of corn, and an increase of 
rent. These consequences, however, 
will not take place with the same 
rapidity as if the higher rate of profit 
had continued. At the end of twenty 
years the country will have a smaller 
population and capital, than, but for 
the tax, it would by that time have 


had; the landlords will have a smaller 
rent; and the price of corn, having 
increased less rapidly than it would 
otherwise have done, will not be so 
much as a tenth higher than what, if 
there had been no tax, it would by that 
time have become. A part of the tax, 
therefore, will already have ceased to 
fall on the consumer, and devolved 
upon the landlord; and the proportion 
will become greater and greater by 
lapse of time. 

Mr. Senior illustrates this view of 
the subject by likening the effects of 
tithes, or other taxes on agricultural 
produce, to those of natural sterility of 
soil. If the land of a country without 
access to foreign supplies, were sud¬ 
denly smitten with a permanent dete¬ 
rioration of quality, to an extent -which 
would make a tenth more labour neces¬ 
sary to raise the existing produce, the 
price of corn would undoubtedly rise 
one-tenth. But it cannot hence be 
inferred that if the soil of the country 
had from the beginnisg been one-tenth 
worse than it is, corn would at present 
have been one-tenth dearer than we 
find it. It is far more probable, that 
the smaller return to labour and capital, 
ever since the first settlement of the 
country, would have caused in each 
successive generation a less rapid in¬ 
crease than has taken place: that the 
country would now have contained less 
capital, and maintained a smaller popu¬ 
lation, so that notwithstanding the in¬ 
feriority of the soil, the price of com 
would not have been higher, nor profits 
lower, than at present; rent alone 
would certainly have been lower. We 
may suppose two islands, which, being 
alike in extent, in natural fertility, and 
industrial advancement, have up to a 
certain time been equal in population 
and capita], and have had equal rentals, 
and the same price of corn. Let us 
imagine a tithe imposed in one of these 
islands, but not in the other. There 
will be immediately a difference in the 
price of corn, and therefore probably in 
profits. While profits are not tending 
downwards in either country, that is, 
while improvements in the production 
of necessaries fully keep pace with the 
inci’ease of population, this difference 



TAXES ON COMMODITIES. 509 


of prices and profits between the islands 
may continue. But if, in the untithed 
island, capital increases, and popula¬ 
tion along with it, more than enough 
to counterbalance any improvements 
which take place, the price of corn will 
gradually rise, profits will fall, and rent 
will increase; while in the tithed island 
capital and population will either not 
increase (beyond what is balanced by 
the improvements), or if they do, will 
increase in a less degree ; so that rent 
and the price of corn will either not rise 
at all, or rise more slowly. Bent, there¬ 
fore, will soon be higher in the untithed, 
than in the tithed island, and profits 
not so much higher, nor corn so much 
cheaper, as they were on the first im¬ 
position of the tithe. These effects 
will be progressive. At the end of 
every ten years there will be a greater 
difference between the rentals and be¬ 
tween the aggregate wealth and popu¬ 
lation of the two islands, and a less 
difference in profits and in the price of 
corn. 

At what point will these last dif¬ 
ferences entirely cease, and the tem¬ 
porary effect of taxes on agricultural 
produce, in raising the price, have en¬ 
tirely given place to the ultimate effect, 
that of limiting the total produce of 
the country? Though the untithed 
island is always verging towards the 
point at which the price of food would 
overtake that in the tithed island, its 
progress towards that point naturally 
slackens as it draws nearer to attaining 
it; since—the difference between the 
two islands in the rapidity of accumu¬ 
lation, depending upon the difference 
in the rates of profit—in proportion as 
these approximate, the movement which 
draw's them closer together, abates of 
its force. The one may not actually 
overtake the other, until both islands 
reach the minimum of profits: up to 
that point, the tithed island may con¬ 
tinue more or less ahead of the untithed 
island in the price of corn: considerably 
ahead if it is far from the minimum, 
and is therefore accumulating rapidly; 
very little ahead if it is near the mini¬ 
mum, and accumulating slowdy. 

But whatever is true of the tithed 
and untithed islands, in our hypotheti¬ 


cal case, is true of any country having 
a tithe, compared with the same 
country if it had never had a tithe. 

In England the great emigration of 
capital, and the almost periodical oc¬ 
currence of commercial crises through 
the speculations occasioned by the 
habitually low rate of profit, are indi¬ 
cations that profit has attained the 
practical, though not the ultimate 
minimum, and that all the savings 
which take place (beyond what im¬ 
provements, tending to the cheapening 
of necessaries, make room for) are 
either sent abroad for investment, or 
periodically swept away. There can 
therefore, I think, be little doubt that 
if England had never had a tithe, or 
any tax on agricultural produce, the 
price of corn would have been by this 
time as high, and the rate of profits as 
low’, as at present. Independently of 
the more rapid accumulation which 
w’ould have taken place if profits had 
not been prematurely lowered by these 
imposts ; the mere saving of a part of 
the capital w’hich has been wasted 
in unsuccessful speculations, and the 
keeping at home a part of that which 
has been sent abroad, would have been 
quite sufficient to produce the effect. 1 
think, therefore, with Mr. Senior, that 
the tithe, even before its commutation, 
had ceased to be a cause of high prices 
or low r profits, and had become a mere 
deduction from rent; its other effects 
being, that it caused the country to 
have no greater capital, no larger pro¬ 
duction, and no more numerous popu¬ 
lation than if it had been one-tenth 
less fertile than it is ; or let us rather 
say one-twentieth, (considering how 
great a portion of the land of Great 
Britain was tithe-free). 

But though tithes and other taxes 
on agricultural produce, when of long 
standing, either do not raise the price 
of food and lower profits at all, or if at 
all, not in proportion to the tax; yet 
the abrogation of such taxes, when 
they exist, does not the less diminish 
price, and, in general, raise the rate of 
profit. The abolition of a tithe takes 
one-tenth from the cost of production, 
and consequently from the price, of 
all agricultural produce ; and unless it 






510 BOOK V. CHAPTER I\ r . § 5. 


permanently raises the labourer's re¬ 
quirements, it lowers the cost of labour, 
and raises profits. Rent, estimated in 
money or in commodities, generally 
remains as before; estimated in agri¬ 
cultural produce, it is raised. The 
country adds as much by the repeal of 
a tithe, to the margin which intervenes 
between it and the stationary state, as 
is cut off from that margin by a tithe 
when first imposed. Accumulation is 
greatly accelerated ; and if population 
also increases, the price of corn imme¬ 
diately begins to recover itself, and 
rent to lise; thus gradually trans¬ 
ferring the benefit of the remission, 
from the consumer to the landlord. 

The effects which thus result from 
abolishing tithe, result equally from 
what has been done by the arrange¬ 
ments under the Commutation Act for 
converting it into a rent-charge. When 
the tax, instead of being levied on the 
whole produce of the soil, is levied only 
from the portions which pay rent, and 
does not touch any fresh extension of 
cultivation, the tax no longer forms 
any part of the cost of production of 
the portion of the produce which regu¬ 
lates the price of all the rest. The 
land or capital which pays no rent, can 
now send its produce to market one- 
tenth cheaper. The commutation of 
tithe ought therefore to have produced 
a considerable fall in the average price 
of corn. If it had not come so gradu¬ 
ally into operation, and if the price of 
corn had not during the same period 
been under the influence of several 
other causes of change, the effect would 
probably have been markedly conspicu¬ 
ous. As it is, there can be no doubt 
that this circumstance has had its 
share in the fall which has taken place 
in the cost of production and in the 
price of home-grown produce ; though 
the effects of the great agricultural 
improvements which have been simul¬ 
taneously advancing, and of the free 
admission of agricultural produce from 
foreign countries, have masked those 
of the other cause. This fall of price 
would not in itself have any tendency 
injurious to the landlord, since corn- 
rents are increased in the same ratio in 
which the price of corn is diminished. 


But neither does it in any way tend to 
increase his income. The rent-charge, 
therefore, which is substituted for tithe, 
is a dead loss to him at the expiration 
of existing leases : and the commuta¬ 
tion of tithe was not a mere alteration 
in the mode in which the landlord bore 
an existing burthen, but the imposition 
of a new one ; relief being afforded to 
the consumer at the expense of the 
landlord, who, however, begins imme¬ 
diately to receive progressive indemni¬ 
fication at the consumer’s expense, by 
the impulse given to accumulation and 
population. 

§ 5. We have hitherto inquired into 
the effects of taxes on commodities, on 
the assumption that they are levied 
impartially on every mode in which the 
commodity can be produced or brought 
to market. Another class of considera¬ 
tions is opened, if we suppose that this 
impartiality is not maintained, and 
that the tax is imposed, not on the 
commodity, but on some particular 
mode of obtaining it. 

Suppose that a commodity is capable 
of being made by two different pro¬ 
cesses ; as a manufactured commodity 
may be produced either by hand or 
by steam-power; sugar may be made 
either from the sugar-cane or from 
beet-root, cattle fattened either on hay 
and green crops, or on oil cake and the 
refuse of breweries. It is the interest 
of the community, that of the two 
methods, producers should adopt that 
which produces the best article at the 
lowest price. This being also the in¬ 
terest of the producers, unless protected 
against competition, and shielded from 
the penalties of indolence ; the process 
most advantageous to the community 
is that which, if not interfered with by 
government, they ultimately find it to 
their advantage to adopt. Suppose 
however that a tax is laid on one of 
the processes, and no tax at all, or one 
of smaller amount, on the other. If the 
taxed process is the one which the pro¬ 
ducers would not have adopted, the 
measure is simply nugatory. But if 
the tax falls, as it is of course intended 
to do, upon the one which they would 
have adopted, it creates an artificial 




TAXES ON COMMODITIES. 


motive for preferring the untaxecl pro¬ 
cess, though the inferior of the two. 
If, therefore, it has any effect at all, it 
causes the commodity to he produced, 
of worse quality, or at a greater ex¬ 
pense of labour; it causes so much of 
the labour of the community to be 
wasted, and the capital employed in 
supporting and remunerating that 
labour to be expended as uselessly, as 
if it were spent in hiring men to dig 
holes and fill them up again. This 
waste of labour and capital constitutes 
an addition to the cost of production of 
the commodity, which raises its value 
and price in a corresponding ratio, and 
thus the owners of the capital are in¬ 
demnified. The loss falls on the con¬ 
sumers ; though the capital of the 
country is also eventually diminished, 
by the diminution of their means of 
saving, and in some degree, of their 
inducements to save. 

The kind of tax, therefore, which 
comes under the general denomination 
of a discriminating duty, transgresses 
the rule that taxes should take as little 
as possible from the tax-payer beyond 
what they bring into the treasury 
of the state. A discriminating duty 
makes the consumer pay two distinct 
taxes, only one of which is paid to the 
government, and that frequently the 
less onerous of the two. If a tax were 
laid on sugar produced from the cane, 
leaving the sugar from beet-root un¬ 
taxed, then in so far as cane sugar 
continued to be used, the tax on it 
would be paid to the treasury, and 
might be as unobjectionable as most 
other taxes; but if cane sugar, having 
previously been cheaper than beet-root 
sugar, was now dearer, and beet-root 
sugar was to any considerable amount 
substituted for it, and fields laid out 
and manufactories established in con¬ 
sequence, the government would gain 
no revenue from the beet-root sugar, 
while the consumers of it would pay a 
real tax. They would pay for beet-root 
sugar more than they had previously 
paid for cane sugar, and the difference 
would go to indemnify producers for a 
portion of the labour of the country 
actually thrown away, in producing by 
the labour of (say) three hundred men, 


511 

what could be obtained by the other 
process with the labour of two hundred. 

One of the commonest cases of dis¬ 
criminating duties, is that of a tax on 
the importation of a commodity capa¬ 
ble of being produced at home, unac¬ 
companied by an equivalent tax on 
the home production. A commodity is 
never permanently imported, unless it 
can be obtained from abroad at a 
smaller cost of labour and capital on 
the whole, than is necessary for pro¬ 
ducing it. If, therefore, by a duty on 
the importation, it is rendered cheaper 
to produce the article than to import 
it, an extra quantity of labour and 
capital is expended, without any extra 
result. The labour is useless, and the 
capital is spent in paying people for 
laboriously doing nothing. All custom 
duties which operate as an encourage¬ 
ment to the home production of the 
taxed article, are thus an eminently 
wasteful mode of raising a revenue. 

This character belongs in a peculiar 
degree to custom duties on the produce 
of land, unless countervailed by excise 
duties on the home production. Such 
taxes bring less into the public trea¬ 
sury, compared with what they take 
from the consumers, than any other 
imposts to which civilized nations are 
usually subject. If the wheat pro¬ 
duced in a country is twenty millions 
of quarters, and the consumption 
twenty-one millions, a million being- 
annually imported, and if on this 
million a duty is laid which raises the 
price ten shillings per quarter, the 
price which is raised is not that of 
the million only, but of the whole 
twenty-one millions. Taking the most 
favourable, but extremely improbable 
supposition, that the importation is 
not at all checked, nor the home pro¬ 
duction enlarged, the state gains a 
revenue of only half a million, while 
the consumers are taxed ten millions 
and a half: the ten millions being a 
contribution to the home growers, who 
are forced by competition to resign it 
all to the landlords. The consumer 
thus pays to the owners of land an 
additional tax, equal to twenty times 
that which he pays to the state. Let 
us now suppose that the tax really 





512 BOOK Y. CHAPTER IV. § 6. 


checks importation. Suppose importa¬ 
tion stopped altogether in ordinary 
years; it being found that the million 
of quarters can be obtained, by a more 
elaborate cultivation, or by breaking 
up inferior land, at a less advance than 
ten shillings upon the previous price 
—say, for instance,- five shillings a 
quarter. The revenue now obtains 
nothing, except from the extraordinary 
imports which may happen to take 
place in a season of scarcity. But the 
consumers pay every year a tax of 
live shillings on the whole twenty-one 
millions of quarters, amounting to 5£ 
millions sterling. Of this the odd 
250,000?. goes to compensate the 
growers of the last million of quarters 
for the labour and capital wasted 
under the compulsion of the law. 
The remaining five millions go to 
enrich the landlords as before. 

Such is the operation of what are 
technically termed Corn Laws, when 
first laid on; and such continues to 
be their operation, so long as they 
have any effect at all in raising the 
price of corn. But I am by no means 
of opinion that in the long run they 
keep up either prices or rents in the de¬ 
gree which these considerations might 
lead us to suppose. What we have 
said respecting the effect of tithes and 
other taxes on agricultural produce, 
applies in a great degree to corn laws: 
they anticipate artificially a rise of 
price and of rent, which would at all 
events have taken place through the 
increase of population and of produc¬ 
tion. The difference between a country 
without corn laws, and a country which 
has long had corn laws, is not so much 
that the last has a higher price or a 
larger rental, but that it has the same 
price and the same rental with a smaller 
aggregate capital and a smaller popu¬ 
lation. The imposition of corn laws 
raises rents, but retards that progress 
of accumulation which would in no 
long period have raised them fully as 
much. The repeal of corn laws tends 
to lower rents, but it unchains a force 
which, in a progressive state of capital 
and population, restores and even in¬ 
creases the former amount. There is 
every reason to expect that uuder the 


virtually free importation of agricultural 
produce, at last extorted from the ruling 
powers of this country, the price of food, 
if population goes on increasing, will 
gradually but steadily rise; though this 
effect may for a time be postponed by 
the strong current which in this country 
has set in (and the impulse is extending 
itself to other countries) towards the 
improvement of agricultural science, 
and its increased application to prac¬ 
tice. 

What we have said of duties on im¬ 
portation generally, is equally appli¬ 
cable to discriminating duties which 
favour importation from one place or 
in one particular manner, in contradis¬ 
tinction to others: such as the pre- 
ference given to the produce of a colony, 
or of a country with which there is a 
commercial treaty : or the higher duties 
formerly imposed by our navigation 
laws on goods imported in other than 
British shipping. Whatever else may 
be alleged in favour of such distinc¬ 
tions, whenever they are not nugatory, 
they are economically wasteful. They 
induce a resort to a more costly mode 
of obtaining a commodity, in lieu of 
one less costly, and thus cause a por¬ 
tion of the labour which the country 
employs in providing itself with foreign 
commodities, to be sacrificed without 
return. 

§ 6. There is one more point, re¬ 
lating to the operation of taxes on 
commodities conveyed from one coun¬ 
try to another, which requires notice: 
the influence tvhich they exert on in¬ 
ternational exchanges. Every tax on 
a commodity tends to raise its price, 
and consequently to lessen the demand 
for it in the market in which it is sold. 
All taxes on international trade tend, 
therefore, to produce a disturbance an<l 
readjustment of what we have termed 
the Equation of International Demand. 
This consideration leads to some rather 
curious consequences, which have been 
pointed out in the separate essay on 
International Commerce, already seve¬ 
ral times referred to in this treatise. 

Taxes on foreign trade are of two 
kinds—taxes on imports, and on ex¬ 
ports. On the first aspect of the 




TAXES ON COMMODITIES. 513 


matter it would seem that both these 
taxes are paid by the consumers of 
the commodity; that taxes on exports 
consequently fall entirely on foreigners, 
taxes on impoi'ts wholly on the home 
consumer. The true state of the case, 
however, is much more complicated. 

“ By taxing exports, we may, in 
certain circumstances, produce a divi¬ 
sion of the advantage of the trade 
more favourable to ourselves. In some 
cases we may draw into our coffers, at 
the expense of foreigners, not only the 
whole tax, but more than the tax: in 
other cases, we should gain exactly the 
tax; in others, less than the tax. In this 
last case, a part of the tax is borne by 
ourselves : possibly the whole, possibly 
even, as we shall show, more than the 
whole.” 

Beverting to the supposititious case 
employed in the Essay, of a trade be¬ 
tween Germany and England in broad¬ 
cloth and linen, “ suppose that England 
taxes her export of cloth, the tax not 
being supposed high enough to induce 
Germany to produce cloth for herself. 
The price at which cloth can be sold 
in Germany is augmented by the tax. 
This will probably diminish the quan¬ 
tity consumed. It may diminish it so 
much that, even at the increased price, 
there will not be required so great a 
money value as before. Or it may not 
diminish it at all, or so little, that in 
consequence of the higher price, a 
greater money value will be purchased 
than before. In this last case, Eng¬ 
land will gain, at the expense of Ger¬ 
many, not only the whole amount of 
the duty, but more; for, the money 
value of her exports to Germany being 
increased, while her imports remain 
the same, money will flow into England 
from Germany. The price of cloth 
will rise in England, and consequently 
in Germany; but the price of linen 
will fall in Germany, and consequently 
in England. We shall export less 
cloth, and import more linen, till the 
equilibrium is restored. It thus ap¬ 
pears (what is at first sight somewhat 
remarkable) that by taxing her exports, 
England would, in some conceivable 
circumstances, not only gain from her 
foreign customers the whole amount of 

P. E. 


the tax, but would also get her imports 
cheaper. She would get them cheaper 
in two ways; for she would obtain 
them for less money, and would have 
more money to purchase them with. 
Germany, on the other hand, would 
suffer doubly : she would have to pay 
for her cloth a price increased not only 
by the duty, but by the influx of money 
into England, while the same change 
in the distribution of the circulating 
medium would leave her less money to 
purchase it with. 

“ This, however, is only one of three 
possible cases. If, after the imposition 
of the duty, Germany requires so di¬ 
minished a quantity of cloth, that its 
total value is exactly the same as be¬ 
fore, the balance of trade would be un¬ 
disturbed; England will gain the duty, 
Germany will lose it, and nothing more. 
If, again, the imposition of the duty 
occasions such a falling off’ in the de¬ 
mand that Germany requires a less 
pecuniary value than before, our ex¬ 
ports will no longer pay for our im¬ 
ports ; money must pass from England 
into Germany ; and Germany’s share 
of the advantage of the trade will be 
increased. By the change in the dis¬ 
tribution of money, cloth will fall in 
England; and therefore it will, of 
course, fall in Germany. Thus Ger¬ 
many will not pay the whole of the 
tax. From the same cause, linen will 
rise in Germany, and consequently in 
England. When this alteration of 
prices has so adjusted the demand, 
that the cloth and the linen again pay 
for one another, the result is that Ger¬ 
many has paid only a part of the tax, 
and the remainder of what has been 
received into our treasury has come in¬ 
directly out of the pockets of our own 
consumers of linen, who pay a higher 
price for that imported commodity in 
consequence of the tax on our exports, 
while at the same time they, in con¬ 
sequence of the efflux of money and 
the fall of prices, have smaller money 
incomes wherewith to pay for the linen 
at that advanced price. 

“ It is not an impossible supposition 
that by taxing our exports we might 
not only gain nothing from the fo¬ 
reigner, the tax being paid out of our 

L L 




514 BOOK V. CHAPTER IV. § 6. 


own pockets, but might even compel 
our own people to pay a second tax to 
the foreigner. Suppose, as before, that 
the demand of Germany for cloth falls 
off so much on the imposition of the 
duty, that she requires a smaller money 
value than before, but that the case is 
so different with linen in England, that 
when the price rises the demand either 
does not fall off at all, or so little that 
the money value required is greater 
than before. The first effect of laying 
on the duty is, as before, that the cloth 
exported will no longer pay for the linen 
imported. Money will therefore flow 
out of England into Germany. One 
effect is to raise the price of linen in 
Germany, and consequently in Eng¬ 
land. But this, by the supposition, 
instead of stopping the efflux of money, 
only makes it greater, because the 
higher the price, the greater the money 
value of the linen consumed. The ba¬ 
lance, therefore, can only be restored 
by the other effect, which is going on 
at the same time, namely, the fall of 
cloth in the English and consequently 
in the German market. Even when 
cloth has fallen so low that its price 
with the duty is only equal to what its 
price without the duty was at first, it 
is not a necessary consequence that the 
fall will stop ; for the same amount of 
exportation as before will not now suf¬ 
fice to pay the increased money value 
of the imports; and although the Ger¬ 
man consumers have now not only cloth 
at the old price, but likewise increased 
money incomes, it is not certain that 
they will be inclined to employ the in¬ 
crease of their incomes in increasing 
their purchases of cloth. The price of 
cloth, therefore, must perhaps fall, to 
restore the equilibrium, more than the 
whole amount of the duty; Germany 
may be enabled to import cloth at a 
lower price when it is taxed, than when 
it was untaxed: and this gain she will 
acquire at the expense of the English 
consumers of linen, who, in addition, 
will be the real payers of the whole of 
what is received at their own custom¬ 
house under the name of duties on the 
export of cloth.” 

It is almost unnecessary to remark 
That cloth and linen are here merely 


representatives of exports and imports 
in general; and that the effect which 
a tax on exports might have in increas¬ 
ing the cost of imports, would affect 
the imports from all countries, and not 
peculiarly the articles which might be 
imported from the particular country 
to which the taxed exports were sent. 

“ Such are the extremely various 
effects which may result to ourselves 
and to our customers from the imposi¬ 
tion of taxes on our exports ; and the 
determining circumstances are of a 
nature so imperfectly ascertainable, 
that it must be almost impossible to 
decide with any certainty, even after 
the tax has been imposed, whether we 
have been gainers by it or losers.” 
In general, however, there could be little 
doubt that a country which imposed 
such taxes would succeed in making 
foreign countries contribute something 
to its revenue; but unless the taxed 
article be one for which their demand 
is extremely urgent, they will seldom 
pay the whole of the amount which the 
tax brings in.* “ In any case, whatever 
we gain is lost by somebody else, and 
there is the expense of the collection 
besides: if international morality, 
therefore, were rightly understood and 
acted upon, such taxes, as being con¬ 
trary to the universal weal, would not 
exist.’’ 

Thus far of duties on exports. "We 
now proceed to the more ordinary case 
of duties on imports. “ We have had an 
example of a tax on exports, that is, on 
foreigners, falling in part on ourselves. 
We shall therefore not be surprised 
if we find a tax on imports, that is, 
on ourselves, partly falling upon fo¬ 
reigners. 

“ Instead of taxing the cloth which 
we export, suppose that we tax the 
linen which we import. The duty 
which we are now supposing must not 
be what is termed a protecting duty, 

* Probably the strongest known instance 
of a large revenue raised from foreigners by 
a tax on exports, is the opium trade with 
China. The high price of the article under 
the Grovernment monopoly (which is equiva¬ 
lent to a high export duty) has so little effect 
in discouraging its consumption, that it is 
said to have been occasionally sold in China 
for as much as its weight in silver. 




TAXES ON COMMODITIES. * 515 


that is, a duty sufficiently high to ' 
induce us to produce the article at i 
home. If it had this effect, it would 
destroy entirely the trade both in cloth \ 
and in linen, and both countries would j 
lose the whole of the advantage which 

O 

they previously gained by exchanging 
those commodities with one another. 
We suppose a duty which might dimi¬ 
nish the consumption of the article, but 
which would not prevent us from con¬ 
tinuing to import, as before, whatever 
linen we did consume. 

“ The equilibrium of trade would be 
disturbed if the imposition of the tax 
diminished, in the slightest degree, the 
quantity of linen consumed. For, as 
the tax is levied at our own custom¬ 
house, the German exporter only re¬ 
ceives the same price as formerly, 
though the English consumer pays a 
higher one. If, therefore, there be any 
diminution of the. quantity bought, al¬ 
though a larger sum of money may be 
actually laid out in the article, a 
smaller one will be due from England 
to Germany: this sum will no longer 
be an equivalent for the sum due from 
Germany to England for cloth, the ba¬ 
lance therefore must be paid in money. 
Prices will fall in Germany and rise in 
England ; linen will fall in the German 
market; cloth will rise in the English. 
The Germans will pay a higher price 
for cloth, and will have smaller money 
incomes to buy it with ; while the Eng¬ 
lish will obtain linen cheaper, that is, 
its price will exceed what it previously 
was by less than the amount of the 
duty, while their means of purchasing 
it will be increased by the increase of 
their money incomes. 

“ If the imposition of the tax does 
not diminish the demand, it will leave 
the trade exactly as it was before. We 
shall import as much, and export as 
much ; the whole of the tax will be 
paid out of our own pockets. 

“ But the imposition of a tax on a 
commodity almost always diminishes 
the demand more or less; and it can 
never, or scarcely ever, increase the 
demand. It may, therefore, be laid 
down as a principle, that a tax on im¬ 
ported commodities, when it really 
operates as a tax, and not as a prohi¬ 


bition either total or partial, almost al¬ 
ways falls in part upon the foreigners 
who consume our goods ; and that this 
is a mode in which a nation may ap¬ 
propriate to itself, at the expense 
of foreigners, a larger share than 
would otherwise belong to it of the 
increase in the general productive¬ 
ness of the labour and capital of the 
world, which results from the inter¬ 
change of commodities among na¬ 
tions.” 

Those are, therefore, in the right 
who maintain that taxes on imports 
are partly paid by foreigners ; but they 
are mistaken when they say, that it is 
by the foreign producer. It is not on 
the person from whom we buy, but on 
all those who buy from us, that a poi-- 
tion of our custom duties spontaneously 
falls. It is the foreign consumer of our 
exported commodities, who is obliged 
to pay a higher price for them because 
we maintain revenue duties on foreign 
goods. 

There are but two cases in which 
duties on commodities can in any de¬ 
gree, or in any manner, fall on the pro¬ 
ducer. One is, when the ai-ticle is a 
strict monopoly, and at a scarcity price. 
The price in this case being only limited 
by the desires of the buyer; the sum 
obtained for the restricted supply being 
the utmost which the buyers would con¬ 
sent to give rather than go without it; 
if the treasury intercepts a part of this, 
the price cannot be further raised to 
compensate for the tax, and it must be 
! paid from the monopoly profits. A tax 
j on rare and high priced wines will fall 
J wholly on the growers, or rather, on 
the owners of the vineyards. The 
second case in which the producer 
sometimes bears a portion of the tax, 
is more important: the case of duties 
| on the produce of land or of mines, 
i These might be so high as to diminish 
materially the demand for the produce, 

1 and compel the abandonment of some 
I of the inferior qualities of land or mines. 

| Supposing this to be the effect, the con- 
j sumers, both in the country itself and 
in those which dealt with it, would ob¬ 
tain the produce at smaller cost; and 
a part only, instead of the whole, of 
the duty would fall on the purchaser, 

L L 2 










516 BOOK V. CHAPTER IV. S 6. 


who would he indemnified chiefly at 

%/ 

tlie expense of the landowners or mine- 
owners in the producing country. 

Duties on importation may, then, be 
divided “ into two classes : those 
which have the effect of encouraging 
some particular branch of domestic in¬ 
dustry, and those which have not. The 
former are purely mischievous, both to 
the country imposing them, and to 
those with whom it trades. They pre¬ 
vent a saving of labour and capital, 
which, if permitted to be made, would 
be divided in some proportion or other 
between the importing country and the 
countries which buy what that country 
does or might export. 

“The other class of duties are those 
which do not encourage one mode of 
procuring an article at the expense of 
another, but allow interchange to take 
place just as if the duty did not exist, 
and to produce the saving of labour 
which constitutes the motive to inter¬ 
national, as to all other commerce. Of 
this kind are duties on the importation 
of any commodity which could not by 
any possibility be produced at home ; 
and duties not sufficiently high to 
counterbalance the difference of ex¬ 
pense between the production of the 
article at home and its importation. 
Of the money which is brought into 
the treasury of any country by taxes 
of this last description, a part only is 
paid by the people of that country; the 
remainder by the foreign consumers of 
their goods. 

“ Nevertheless, this latter kind of 
taxes are in principle as ineligible as 
the former, though not precisely on the 
same ground. A protecting duty can 
never be a cause of gain, but always 
and necessarily of loss, to the country 
imposing it, just so far as it is effica¬ 
cious to its end. A non-protecting 
duty, on the contrary, would in most 
cases be a source of gain to the country 
imposing it, in so far as throwing part 
of the weight of its taxes upon other 
people is a gain; but it would be a 


means which it could seldom be ad¬ 
visable to adopt, being so easily coun¬ 
teracted by a precisely similar pro¬ 
ceeding on the other side. 

“ If England, in the case already 
supposed, sought to obtain for herself 
more than her natural share of the 
advantage of the trade with Germany, 
by imposing a duty upon linen, Ger¬ 
many would only have to impose a 
duty upon cloth, sufficient to diminish 
the demand for that article about as 
much as the demand for linen had been 
diminished in England by the tax. 
Things would then be as before, and 
each country would pay its own tax. 
Unless, indeed, the sum of the two 
duties exceeded the entire advantage 
of the trade: for in that case the trade, 
and its advantage, would cease en¬ 
tirely. 

“ There would be no advantage, 
therefore, in imposing duties of this 
kind, with a view to gain by them in 
the manner which has been pointed 
out. But when any part of the revenue 
is derived from taxes on commodities, 
these may often be as little objection¬ 
able as the rest. It is evident, too, 
that considerations of reciprocity, which 
are quite unessential when the matter 
in debate is a protecting duty, are of 
material importance when the repeal 
of duties of this other description is 
discussed. A country cannot be ex¬ 
pected to renounce the power of taxing 
foreigners, unless foreigners will in re¬ 
turn practise towards itself the same 
forbearance. The only mode in which 
a country can save itself from being a 
loser by the revenue duties imposed by 
other countries on its commodities, is 
to impose corresponding revenue duties 
on theirs. Only it must take care that 
those duties be not so high as to exceed 
all that remains of the advantage of 
the trade, and put an end to importa¬ 
tion altogether, causing the article to 
be either produced at home, or im¬ 
ported from another and a dearer 
market.’’ 




MISCELLANEOUS TAXES. 


517 


CHAPTER V. 

OF SOME OTHER TAXES. 


§ 1. Besides direct taxes on in¬ 
come, and taxes on consumption, the 
financial systems of most countries 
comprise a variety of miscellaneous 
imposts, not strictly included in either 
class. The modern European systems 
retain many such taxes, though in 
much less number and variety than 
those semi-barbarous governments 
which European influence has not yet 
reached. In some of these, scarcely 
any incident of life has escaped being 
made an excuse for some fiscal exac¬ 
tion ; hardly any act, not belonging to 
daily routine, can be performed by any 
one, without obtaining leave from some 
agent of government, which is only 
granted in consideration of a payment: 
especially when the act requires the aid 
or the peculiar guarantee of a public 
authority. In the present treatise we 
may confine our attention to such 
taxes as lately existed, or still exist, in 
countries usually classed as civilized. 

In almost all nations a considerable 
revenue is drawn from taxes on con¬ 
tracts. These are imposed in various 
forms. One expedient is that of taxing 
the legal instrument which serves as 
evidence of the contract, and which is 
commonly the only evidence legally 
admissible. In England, scarcely any 
contract is binding unless executed on 
stamped paper, which has paid a tax 
to government; and until very lately, 
when the contract related to property 
the tax was proportionally much 
heavier on the smaller than on the 
larger transactions ; which is still true 
of some of those taxes. There are also 
stamp duties on the legal instruments 
which are evidence of the fulfilment of 
contracts; such as acknowledgments 
of receipt, and deeds of release. Taxes 
on contracts arc not always levied by 
means of stamps. The duty on sales 
by auction, abrogated by Sir Robert 
Peel, was an instance in point. The 
taxes on transfers of landed property, j 


in France, are another: in England 
these are stamp-duties. In some 
countries, contracts of many kinds are 
not valid unless registered, and their 
registration is made an occasion for a 
tax. 

Of taxes on contracts, the most im¬ 
portant are those on the transfer of 
property; chiefly on purchases and 
sales. Taxes on the sale of consumable 
commodities are simply taxes on those 
commodities. If they affect only some 
particular commodities, they raise the 
prices of those commodities, and are 
paid by the consumer. If the attempt 
were made to tax all purchases and 
sales, which, however absurd, was for 
centuries the law of Spain, the tax, if 
it could he enforced, would be equiva¬ 
lent to a tax on all commodities, and 
would not affect prices : if levied from 
the sellers, it would be a tax on profits, 
if from the buyers, a tax on consump¬ 
tion ; and neither class could throw the 
burthen upon the other. If confined 
to some one mode of sale, as for ex¬ 
ample by auction, it discourages re¬ 
course to that mode, and if of any 
material amount,prevents it from being 
adopted at all, unless in a case of 
emergency; in which case as the seller 
is under a necessity to sell, but the 
buyer under no necessity to buy, the 
tax falls on the seller; and this was 
the strongest of the objections to the 
auction duty: it almost always fell on 
a necessitous person, and in the crisis 
of his necessities. 

Taxes on the purchase and sale of 
land are, in most countries, liable to 
the same objection. Landed property 
in old countries is seldom parted with, 
except from reduced circumstances, or 
some urgent need : the seller, there¬ 
fore, must take what he can get, while 
the buyer, whose object is an invest¬ 
ment, makes Iris calculations on the 
interest which he can obtain for his 
money in other ways, and will not buy 





518 BOOK V. CHAPTEB V. § 2. 


if he is charged with a government tax 
on the transaction.* It has indeed 
been objected, that this argument 
would not apply if all modes of perma¬ 
nent investment, such as the purchase 
of government securities, shares in 
joint-stock companies, mortgages, and 
the like, were subject to the same tax. 
But even then, if paid by the buyer, it 
would be equivalent to a tax on in¬ 
terest: if sufficiently heavy to be of 
any importance, it would disturb the 
established relation between interest 
and profit; and the disturbance would 
redress itself by a rise in the rate of 
interest, and a fall of the price of land 
and of all securities. It appears to me, 
therefore, that the seller is the person 
by whom such taxes, unless under 
peculiar circumstances, will generally 
be borne. 

All taxes must be condemned which 
throw obstacles in the way of the sale 
of land, or other instruments of produc¬ 
tion. Such sales tend naturally to 
render the property more productive. 
The seller, whether moved by necessity 
or choice, is probably some one who is 
either without the means, or without 
the capacity, to make the most advan¬ 
tageous use of the property for produc¬ 
tive purposes ; while the buyer, on the 
other hand, is at any rate not needy, 
and is frequently both inclined and 
able to improve the property, since, as 
it is worth more to such a person than 
to any other, he is likely to offer the 
highest price for it. All taxes, there¬ 
fore, and all difficulties and expenses, 
annexed to such contracts, are deci¬ 
dedly detrimental; especially in the 
case of land, the source of subsistence, 
and the original foundation of all wealth, 
on the improvement of which, there¬ 
fore, so much depends. Too great 
facilities cannot be given to enable 
laud to pass into the hands, and as- 

* The statement in the text requires 
modification in the case of countries where 
the land is owned in small portions. These 
being neither a badge of importance, nor in 
general an object of local attachment, are 
readily parted with at a small advance on 
their original cost, with the intention of buy¬ 
ing elsewhere : and the desire of acquiring 
land, even on disadvantageous terms, is so 
great, as to be little checked by even a high 
rate of taxation. 


sume the modes of aggregation or divi¬ 
sion, most conducive to its productive¬ 
ness. If landed properties are too 
large, alienation should be free, in 
order that they may be subdivided; if 
too small, in order that they may be 
united. All taxes on the transfer of' 
landed property should be abolished; 
but, as the landlords have no claim to 
be relieved from any reservation which 
the state has hitherto made in its own 
favour from the amount of their rent, 
an annual impost equivalent to the 
average produce of these taxes should 
be distributed over the land generally, 
in the form of a land-tax. 

Some of the taxes on contracts are 
very pernicious, imposing a virtual 
penalty upon transactions -which it 
ought to be the policy of the legislator 
to encourage. Of this sort is the stamp 
duty on leases, which in a country of 
large properties are an essential condi¬ 
tion of good agriculture; and the tax 
on insurances, a direct discouragement 
to prudence and forethought. In the 
case of fire insurances, the tax was 
until lately in all cases, and still is 
in most cases, exactly double the 
amount of the premium of insurance on 
common risks ; so that the person in¬ 
suring is obliged by the government 
to pay for the insurance just three 
times the value of the risk. If this tax 
existed in France, we should not see, as 
we do in some other provinces, the plate 
of an insurance company on almost 
every cottage or hovel. This, indeed, 
must be ascribed to the provident and 
calculating habits produced by the dis¬ 
semination of property through the la¬ 
bouring class : but a tax of so extra¬ 
vagant an amount would be a heavy 
drag upon any habits of providence. 

§ 2. Nearly allied to the taxes on 
contracts are those on communication. 
The principal of these is the postage 
tax; to which may be added taxes on 
advertisements, and on newspapers, 
which are taxes on the communication 
of information. 

The common mode of levying a tax 
on the conveyance of letters, is by 
making the; government the sole au¬ 
thorized carrier of them, and demand- 




MISCELLANEOUS TAXES. 519 


ing a. monopoly price. When this 
price is so moderate as it is in this 
country under the uniform penny post¬ 
age, scarcely if at all exceeding what 
would he charged under the freest 
competition by any private company, it 
can hardly be considered as taxation, 
but rather as the profits of a business ; 
whatever excess there is above the 
ordinary profits of stock being a fair 
result of the saving of expense, caused 
by having only one establishment and 
one set of arrangements for the whole 
country, instead of many competing 
ones. The business, too, being one 
which both can and ought to be con¬ 
ducted on fixed rules, is one of the few 
businesses which it is not unsuitable to 
a government to conduct. The post 
office, therefore, is at present one of the 
best of the sources from which this 
country derives its revenue. But a 
postage much exceeding what would 
be paid for the same service in a system 
of freedom, is not a desirable tax. Its 
chief weight falls on letters of business, 
and increases the expense of mercan¬ 
tile relations between distant places. 
It is like an attempt to raise a large 
revenue by heavy tolls: it obstructs all 
operations by which goods are con¬ 
veyed from place to place, and dis¬ 
courages the production of commodities 
in one place for consumption in an¬ 
other ; which is not only in itself one 
of the greatest sources of economy of 
labour, but is a necessary condition of 
almost all improvements in production, 
and one of the strongest stimulants to 
industry and promoters of civilization. 

A tax on advertisements is not free 
from the same objection, since in what¬ 
ever degree advertisements are useful 
to business, by facilitating the coming 
together of the dealer or producer and 
the consumer, in that same degree, if 
the tax be high enough to be a serious 
discouragement to advertising, it pro¬ 
longs the period during which goods 
remain unsold, and capital locked up 
in idleness. 

A tax on newspapers is objection¬ 
able, not so much where it does fall as 
where it does not, that is, where it 
prevents newspapers from being used. 
To the generality of those who buy 


them, newspapers are a luxury which 
they can as well afford to pay for as 
any other indulgence, and which is as 
unexceptionable a source of revenue. 
But to that large part of the commu¬ 
nity who have been taught to read, but 
have received little other intellectual 
education, newspapers are the source 
of nearly all the general information 
which they possess, and of nearly all 
their acquaintance with the ideas and 
topics current among mankind; and 
an interest is more easily excited in 
newspapers, than in books or other 
more recondite sources of instruction. 
Newspapers contribute so little, in a 
direct way, to the origination of useful 
ideas, that many persons undervalue 
the importance of their office in dis¬ 
seminating them. They correct many 
prejudices and superstitions, and keep 
up a habit of discussion, and interest 
in public concerns, the absence of which 
is a great cause of the stagnation of 
mind usually found in the lower and 
middle, if not in all, ranks, of those 
countries where newspapers of an im¬ 
portant or interesting character do not 
exist. There ought to be no taxes 
which render this great diffuser of in¬ 
formation, of mental excitement, and 
mental exercise, less accessible to that 
portion of the public which most needs 
to be carried into a region of ideas 
and interests beyond its own limited 
horizon. 

§ 3. In the enumeration of bad 
taxes, a conspicuous place must be 
assigned to law taxes; which extract 
a revenue for the state from the various 
operations involved in an application 
to the tribunals. Like all needless 
expenses attached to law proceedings, 
they are a tax on redress, and there¬ 
fore a premium on injury. Although 
such taxes have been abolished in this 
country as a general source of revenue, 
they still exist in the form of fees of 
court, for defraying the expense of the 
courts of justice ; under the idea, ap¬ 
parently, that those may fairly be re¬ 
quired to bear the expenses of the 
administration of justice, who reap the 
benefit of it. The fallacy of this doc¬ 
trine was powerfully exposed by Ben- 



520 BOOK V. CHAPTER V. § 4. 


tham. As he remarked, those who are 
under the necessity of going to law, 
are those who benefit least, not most, 
by the law and its administration. To 
them the protection which the law 
affoids has not been complete, since 
they have been obliged to resort to a 
court of justice to ascertain their rights, 
or maintain those rights against in¬ 
fringement : while the remainder of 
the public have enjoyed the immunity 
from injury conferred by the law and 
the tribunals, without the inconveni¬ 
ence of an appeal to them. 

§ 4. Beside. 1 * the general taxes of 
the State, there are in all or most 
countries local taxes, to defray any ex¬ 
penses of a public nature which it is 
thought best to place under the control 
or management of a local authority. 
Some of these expenses are incurred 
for purposes in which the particular 
locality is solely or chiefly interested ; 
as the paving, cleansing, and lighting 
of the streets; or the making and re¬ 
pairing of roads and bridges, which 
may be important to people from any 
part of the country, but only in so far 
as they, or goods in which they have 
an interest, pass along the roads or 
over the bridges. In other cases again, 
the expenses are of a kind as nation¬ 
ally important as an}'- others, but are 
defrayed locally because supposed more 
likely to be well administered by local 
bodies; as, in England, the relief of 
the poor and the support of gaols, and 
in some other countries, of schools. 
To decide for what public objects local 
superintendence is best suited, and 
what are those which should be kept 
immediately under the central govern¬ 
ment, or under a mixed system of local 
management and central superintend¬ 
ence, is a question not of political 
economy, but of administration. It is 
an important principle, however, that 
taxes imposed by a local authority, 
being less amenable to publicity and 
discussion than the acts of the govern¬ 
ment, should always be special—laid 
on for some definite service, and not 
exceeding the expense actually incurred 


in rendering the service. Thus limited, 
it is desirable, whenever practicable, 
that the burthen should fall on those 
to whom the service is rendered ; that 
the expense, for instance, of roads and 
bridges, should be defrayed by a toll 
on passengers and goods conveyed by 
them, thus dividing the cost between 
those who use them for pleasure or 
convenience, and the consumers of the 
goods which they enable to be brought 
to and from the market at a diminished 
expense. When, however, the tolls 
have repaid with interest the whole of 
the expenditure, the road or bridge 
should be thrown open free of toll, that 
it may be used also by those to whom, 
unless open gratuitously, it would be 
valueless; provision being made for 
repairs either from the funds of 
the state, or by a rate levied on the 
localities which reap the principal 
benefit. 

In England, almost all local taxes 
are direct, (the coal duty of the City of 
London, and a few similar imposts, 
being the chief exceptions,) though the 
greatest part of the taxation for gene¬ 
ral purposes is indirect. On the con¬ 
trary, in France, Austria, and other 
countries where direct taxation is much 
more largely employed by the state, 
the local expenses of towns are princi¬ 
pally defrayed by taxes levied on com¬ 
modities when entering them. These 
indirect taxes are much more objec¬ 
tionable in towns than on the frontier, 
because the things which the country 
supplies to the towns are chiefly the 
necessaries of life and the materials of 
manufacture, while of what a country 
imports from foreign countries, the 
greater part usually consists of luxuries. 
An octroi cannot produce a large reve¬ 
nue, without pressing severely upon 
the labouring classes of the towns; 
unless their wages rise proportionally, 
in which case the tax falls in a great 
measure on the consumers of town 
produce, whether residing in town or 
country, since capital will not remain 
in the towns if its profits fall below 
their ordinary proportion as compared 
with the rural districts. 



DIRECT AND INDIRECT TAXES COMPARED. 


521 


CHAPTER VI. 

COMPARISON BETWEEN DIRECT AND INDIRECT TAXATION. 


§ 1. Are direct or indirect taxes 
the most eligible ? This question, at 
all times interesting, has of late excited 
a considerable amount of discussion. 
In England there is a popular feeling, 
of old standing, in favour of indirect, 
or i t should rather be said in opposition 
to direct, taxation. The feeling is not 
grounded on the merits of the case, and 
is of a puerile kind. An Englishman 
dislikes, not so much the payment as 
the act of paying. He dislikes seeing 
the face of the tax-collector, an 1 being 
subjected to his peremptory demand. 
Perhaps, too, the money which he is 
required to pay directly out of his 
pocket is the only taxation which he is 
quite sure that he pays at all. That a 
tax of one shilling per pound on tea, or 
of two shillings per bottle on wine, 
raises the price of each pound of tea 
and bottle of wine which he consumes, 
by that and more than that amount, 
cannot indeed be denied; it is the fact, 
and is intended to be so, and he him¬ 
self, at times, is perfectly aware of it; 
but it makes hardly any impression on 
his practical feelings and associations, 
serving to illustrate the distinction be¬ 
tween what is merely known to be true 
and what is felt to be so. The un¬ 
popularity of direct taxation, contrasted 
with the easy manner in which the 
public consent to let themselves be 
fleeced in the prices of commodities, 
has generated in many friends of im¬ 
provement a directly opposite mode of 
thinking to the foregoing. They con¬ 
tend that the very reason which makes 
direct taxation disagreeable, makes it 
preferable. Under it, every one knows 
how much he really pays ; and if he 
votes for a war, or any other expensive 
national luxury, he does so with his 
eyes open to what it costs him. If all 
taxes were direct, taxation -would be 
much more perceived than at present; 
and there -would be a security which 


now there is not, for economy in the 
public expenditure. 

Although this argument is not with¬ 
out force, its weight is likely to be 
constantly diminishing. The real in¬ 
cidence of indirect taxation is every 
day more generally understood and 
more familiarly recognised: and what¬ 
ever else may be said of the changes 
which are taking place in the tenden¬ 
cies of the human mind, it can scarcely, 
I think, be denied, that things are more 
and more estimated according to their 
calculated value, and less according to 
their non-essential accompaniments. 
The mere distinction between paying 
money directly to the tax-collector, and 
contributing the same sum through 
the intervention of the tea-dealer or 
the wine-merchant, no longer makes 
the whole difference between dislike or 
opposition, and passive acquiescence. 
But further, while any such infirmity 
of the popular mind subsists, the argu¬ 
ment grounded on it tells partly on 
the other side of the question. If 
our present revenue of about seventy 
millions were all raised by direct 
taxes, an extreme dissatisfaction would 
certainly arise at having to pay so 
much; but while men’s minds are so 
little guided by reason, as such a 
change of feeling from so irrelevant a 
cause would imply, so great an aver¬ 
sion to taxation might not be an un¬ 
qualified good. Of the seventy millions 
in question, nearly thirty are pledged, 
under the most binding obligations, to 
those wdiose property has been bor¬ 
rowed and spent by the state : and 
while this debt remains unredeemed, a 
greatly increased impatience of taxa¬ 
tion would involve no little danger of 
a breach of faith, similar to that 
vdiich, in the defaulting states of 
America, has been produced, and in 
some of them still continues, from the 
same cause. That part, indeed, of the 



BOOK V. CHAPTER VI. § 1. 


public expenditure, which is devoted 
to the maintenance of’ civil and mili¬ 
tary establishments, (that is, all ex¬ 
cept the interest of the national debt) 
affords, in many of its details, ample 
scope for retrenchment. But while 
much of the revenue is wasted under 
the mere pretence of public service, so 
much of the most important business 
of government is left undone, that 
whatever can he rescued from useless 
expenditure is urgently required for 
useful. Whether the object he educa¬ 
tion ; a more efficient and accessible 
administration of justice ; reforms of 
any kind which, like the Slave Eman¬ 
cipation, require compensation to indi¬ 
vidual interests; or what is as im¬ 
portant as any of these, the entertain¬ 
ment of a sufficient staff of able and 
educated public servants, to conduct 
in a better than the present awkward 
manner the business of legislation and 
administration ; every one of these 
things implies considerable expense, 
and many of them have again and 
again been prevented by the reluc¬ 
tance which existed to apply to Par¬ 
liament for an increased grant of 
public money, though (besides that 
the existing means would be more 
than sufficient if applied to the proper 
purposes) the cost -would he repaid, 
often a hundred-fold, in mere pecuniary 
advantage to the community generally. 
If so great an addition were made to 
the public dislike of taxation as might 
he the consequence of confining it to 
the direct form, the classes who profit 
by the misapplication of public money 
might probably succeed in saving that 
by which they profit, at the expense 
of that which would only be useful to 
the public. 

There is, however, a frequent plea 
in support of indirect taxation, which 
must be altogetherrejected, as grounded 
on a fallacy. We are often told that 
taxes on commodities are less burthen- 
some than other taxes, because the 
contributor can escape from them by 
ceasing to use the taxed commodity. 
He certainly can, if that be his object, 
deprive the government of the money; 
but he does so by a sacrifice of his own 
indulgences, which (if he chose to 


undergo it) would equally make up to 
him for the same amount taken from 
him by direct taxation. Suppose a tax 
laid on wine, sufficientto add five pounds 
to the price of the quantity of wine which 
he consumes in a year. He has only 
(we are told) to diminish his consump¬ 
tion of wine by 51., and he escapes the 
burthen. True : but if the 51., instead 
of being laid on wine, had been taken 
from him by an income-tax, he could, 
by expending 51. less in wine, equally 
save the amount of the tax, so that 
the difference between the two cases 
is really illusory. If the government 
takes from the contributor five pounds 
a year, whether in one way or another, 
exactly that amount must be retrenched 
from his consumption to leave him as 
well off as before ; and in either way 
the same amount of sacrifice, neither 
more nor less, is imposed on him. 

On the other hand, it is some ad¬ 
vantage on the side of indirect taxes, 
that what they exact from the con¬ 
tributor is taken at a time and in a 
manner likely to be convenient to him. 
It is paid at a time when he has at 
any rate a payment to make ; it causes, 
therefore, no additional trouble, nor 
(unless the tax be on necessaries) any 
inconvenience but what is inseparable 
from the payment of the amount. He 
can also, except in the case of very 
perishable articles, select his own time 
for laying in a stock of the commodity, 
and consequently for payment of the 
tax. The producer or dealer who ad¬ 
vances these taxes, is, indeed, some¬ 
times subjected to inconvenience : but, 
in the case of imported goods, this in¬ 
convenience is reduced to a minimum 
by w r hat is called the Warehousing 
System, under which, instead of paying 
the duty at the time of importation, he- 
is only required to do so when he takes 
out the goods for consumption, which 
is seldom done until he has either 
actually found, or has the prospect of 
immediately finding, a purchaser. 

The strongest objection, however, to 
raising the whole or the greater part 
of a large revenue by direct taxes, is 
the impossibility of assessing them 
fairly without a conscientious co-ope¬ 
ration on the part of the contributors, 



DIRECT AND INDIRECT TAXES COMPARED. 


riot to be hoped for in the present low 
state of public morality. In the case 
of an income-tax, we have already 
seen that unless it be found practicable 
to exempt savings altogether from the 
tax, the burthen cannot lie apportioned 
with any tolerable approach to fairness 
upon those whose incomes are derived 
from business or professions ; and this 
is in fact admitted by most of the 
advocates of dix*ect taxation, who, I 
am afraid, generally get over the diffi¬ 
culty by leaving those classes untaxed, 
and confining their projected income- 
tax to “ realized property,” in which 
form it certainly has the merit of 
being a very easy form of plunder. 
But enough has been said in condem¬ 
nation of this expedient. We have 
seen, however, that a house-tax is a 
form of direct taxation not liable to 
the same objections as an income-tax, 
and indeed liable to as few objections 
of any kind as perhaps any of our indi¬ 
rect taxes. But it would be impossible 
to raise, by a house-tax alone, the 
greatest part of the revenue of Great 
Britain, without producing a very ob¬ 
jectionable over-crowding of the popu¬ 
lation, through the strong motive 
which all persons would have to avoid 
the tax by restricting their house ac¬ 
commodation. Besides, even a house- 
tax has inequalities, and consequent 
injustices ; no tax is exempt from 
them, and it is neither just nor politic 
to make all the inequalities fall in the 
same places, by calling upon one tax 
to defray the whole or the chief part 
of the public expenditure. So much 
of the local taxation, in this country, 
being already in the form of a house- 
tax, it is probable that ten millions a 
year would be fully as much as could 
beneficially be levied, through this 
medium, for general purposes. 

A certain amount of revenue may, 
as we have seen, be obtained without 
injustice by a peculiar tax on rent. 
Besides the present land-tax, and an 
equivalent for the revenue now derived 
from stamp duties on the conveyance 
of land, some further taxation might, 
I have contended, at some future 
period be imposed, to enable the state 
to participate in the progressive in- 


52S 

crease of the incomes of landlords from 
natural causes. Legacies and inheri¬ 
tances, we have also seen, ought to be 
subjected to taxation sufficient to yield 
a considerable revenue. With these 
taxes, and a house-tax of suitable 
amount, we should, I think, have 
reached the prudent limits of direct 
taxation, save in a national emergency 
so urgent as to justify the government 
in disregarding the amount of in¬ 
equality and unfairness which may 
ultimately be found inseparable from 
an income-tax. The remainder of the 
revenue would have to be provided by 
taxes on consumption, and the ques¬ 
tion is, which of these are the least 
objectionable. 

§ 2. There are some forms of indi¬ 
rect taxation which must be peremp¬ 
torily excluded. Taxes on commodi¬ 
ties, for revenue purposes, must not 
operate as protecting duties, but must 
be levied impartially on every mode in 
which the articles can be obtained, 
whether produced in the country itself, 
or imported. An exclusion must also 
be put upon all taxes on the neces¬ 
saries of life, or on the materials or 
instruments employed in producing 
those necessaries. Such taxes are 
always liable to encroach on what 
should be left untaxed, the incomes 
barely sufficient for healthful exist¬ 
ence ; and on the most favourable 
supposition, namely, that wages rise 
to compensate the labourers for the 
tax, it operates as a peculiar tax on 
profits, which is at once unjust, and 
detrimental to national wealth.* What 
remain are taxes on luxuries. And 
these have some properties which 

* Some argue that the materials and in¬ 
struments of all production should be exempt 
from taxation; but these, when they do not 
enter into the production of necessaries, seem 
as proper subjects of taxation as the finished 
article. It is chiefly with reference to 
foreign trade, that such taxes have been 
considered injurious. Internationally speak¬ 
ing, they may be looked upon as export 
duties, and, unless in cases in which an ex¬ 
port duty is advisable, they should be accom¬ 
panied with an equivalent drawback on ex¬ 
portation. But there is no sufficient reason 
against taxing the materials and instruments 
used in the production of anything which is 
itself a fit object of taxation. 



BOOK V. CHAPTER VI. § 3. 


524 

strongly recommend tliem. In the 
first place, they can never, by any 
possibility, touch those whose whole 
income is expended on necessaries; 
while they do reach those by whom 
what is required for necessaries, is ex¬ 
pended on indulgences. In the next 
place, they operate in some cases as 
an useful, and the only useful, kind of 
sumptuary law. I disclaim all asceti¬ 
cism, and by no means wish to see dis¬ 
couraged, either by law or opinion, any 
indulgence (consistent with the means 
and obligations of the person using it) 
which is sought from a genuine incli¬ 
nation for, and enjoyment of, the thing 
itself; but a great portion of the ex¬ 
pense of the higher and middle classes 
in most countries, and the greatest in 
this, is not incurred for the sake of 
the pleasure afforded by the things on 
which the money is spent, but from 
regard to opinion, and an idea that 
certain expenses are expected from 
them, as an appendage of station; 
and I cannot but think that expendi¬ 
ture of this sort is a most desirable 
subject of taxation. If taxation dis¬ 
courages it, some good is done, and if 
not, no harm; for in so far as taxes 
are levied on things which are desired 
and possessed from motives of this 
description, nobody is the worse for 
them. When a thing is bought not 
for its use but for its costliness, cheap¬ 
ness is no recommendation. As Sis- 
mondi remarks, the consequence of 
cheapening articles of vanity, is not 
that less is expended on such things, 
but that the buyers substitute for the 
cheapened article some other which 
is more costly, or a more elaborate 
quality of the same thing; and as the 
inferior quality answered the purpose 
of vanity equally well when it was 
equally expensive, a tax on the article 
is really paid by nobody : it is a crea¬ 
tion of public revenue by which nobody 
loses.* 

* “Were we to suppose that diamonds 
could only be procured from one particular 
and distant country, and pearls from another, 
and were the produce of the mines in the 
former, and of the fishery in the latter, from 
the operation of natural causes, to become 
doubly difficult to procure, the effect would 
merely be that in time half the quantity of 


§ 3. In order to reduce as much as 
possible the inconveniences, and in¬ 
crease the advantages, incident to 
taxes on commodities, the following 
are the practical rules which suggest 
themselves. 1st. To raise as large a 
revenue as conveniently may be, from 
those classes of luxuries which have 
most connexion with vanity, and least 
with positive enjoyment; such as the 
more costly qualities of all kinds of 
personal equipment and ornament. 
2ndly. Whenever possible, to demand 
the tax, not from the producer, but 
directly from the consumer, since when 
levied on the producer it raises the 
price always by more, and often by 
much more, than the mere amount of 
the tax. Most of the minor assessed 

diamonds and pearls would be sufficient to 
mark a certain opulence and rank, that it 
had before been necessary' to employ for that 
purpose. The same quantity of gold, or 
some commodity' reducible at last to labour, 
would be required to produce the now re¬ 
duced amount, as the former larger amount. 
Were the difficulty' interposed by the regula¬ 
tions of legislators.it could 

make no difference to the fitness of these 
articles to serve the purposes of vanity.” 
Suppose that means were discoveredwhereby 
the physiological process which generates the 
pearl might be induced ad libitum, the result 
being that the amount of labour expended in 
procuring each pearl, came to be only the 
five hundredth part of what it was before. 
“ The ultimate elfect of such a change would 
depend on whether the fishery was free or 
not. Were it free to all, as pearls could be 
got simply' for the labour of fishing for them, 
a string of them might be had for a few 
pence. The very poorest class of society 
could therefore afford to decorate their per¬ 
sons with them. They would thus soou be¬ 
come extremely vulgar and unfashionable, 
and so at last valueless. If however we sup¬ 
pose that instead of the fishery being free, 
the legislator owns and has complete com¬ 
mand of the place, where alone pearls are to 
be procured; as the progress of discovery 
advanced, he might impose a duty on them 
equal to the diminution of labour necessary 
to procure them. They would then be as 
much esteemed as they' were before. What 
simple beauty they have would remain un¬ 
changed. The difficulty to be surmoufited 
in order to obtain them would be different, 
but equally great, and they would therefore 
equally serve to mark the opulence of those 
who possessed them.” The net revenue ob¬ 
tained by such a tax “ would not cost the 
society anything. If not abused in its ap¬ 
plication, it would be a clear addition of so 

much to the resources of the community.”_ 

Eae, New Principles of Political Economy, 
pp. <369-/1. 



DIRECT AND INDIRECT TAXES COMPARED. 525 


taxes in this country are recommended 
by both these considerations. But 
with regard to horses and carriages, as 
there are many persons to whom, from 
health or constitution, these are not so 
much luxuries as necessaries, the tax 
paid by those who have but one riding 
horse, or but one carriage, especially 
of the cheaper descriptions, should be 
low; while taxation should rise very 
rapidly with the number of horses 
and carriages, and with their cost¬ 
liness. Srdly. But as the only in¬ 
direct taxes which yield a large re¬ 
venue are those which fall on articles 
of universal or very general consump¬ 
tion, and as it is therefore necessary 
to have some taxes on real luxuries, 
that is, on things which afford pleasure 
in themselves, and are valued on that 
account rather than for their cost; 
these taxes should, if possible, be so 
adjusted as to fall with the same pro¬ 
portional weight on small, on moderate, 
and on large incomes. This is not an 
easy matter; since the things which 
are the subjects of the more produc¬ 
tive taxes, are in proportion more 
largely consumed by the poorer mem¬ 
bers of the community than by the 
rich. Tea, coffee, sugar, tobacco, fer¬ 
mented drinks, can hardly be so taxed, 
that the poor shall not bear more than 
their due share of the burthen. Some¬ 
thing might be done by making the 
duty on the superior qualities, which 
are used by the richer consumers, 
much higher in proportion to the value, 
(instead of much lower, as is almost 
universally the practice under the pre¬ 
sent English system); but in some 
cases the difficulty of at all adjusting 
the duty to the value, so as to prevent 
evasion, is said, with what truth I 
know not, to be insuperable; so that 
it is thought necessary to levy the 
same fixed duty on all the qualities 
alike: a flagrant injustice to the 
poorer class of contributors, unless 
compensated by the existence of other 
taxes from which, as from the present 
income-tax, they are altogether exempt. 
4thly. As far as is consistent with the 
preceding rules, taxation should rather 
be concentrated on a few articles than 
diffused over many, in order that the 


expenses of collection may be smaller, 
and that as few employments as pos¬ 
sible may be burthensomely and vexa- 
tiously interfered with. 5thly. Among 
luxuries of general consumption, tax¬ 
ation should by preference attach 
itself to stimulants, because these, 
though in themselves as legitimate 
indulgences as anv others, are more 
liable than most others to be used in 
excess, so that the check to consump¬ 
tion, naturally arising from taxation, 
is on the whole better applied to them 
than to other things. Gtldy. As far as 
other considerations permit, taxation 
should be confined to imported articles, 
since these can be taxed with a less 
degree of vexatious interference, and 
with fewer incidental bad effects, than 
when a tax is levied on the field or on 
the workshop. Custom duties arc, 
cceteris paribus , much less objection¬ 
able than excise : but they must be 
laid only on things which either can¬ 
not, or at least will not, be produced 
in the country itself; or else their 
production there must be prohibited 
(as in England is the case with to¬ 
bacco,) or subjected to an excise duty 
of equivalent amount. 7thly. No tax 
ought to be kept so high as to furnish 
a motive to its evasion, too strong to 
be counteracted by ordinary means of 
prevention: and especially no com¬ 
modity should be taxed so highly as 
to raise up a class of lawless characters, 
smugglers, illicit distillers, and the like. 

Of the excise and custom duties 
lately existing in this country, all 
which are intrinsically unfit to form 
part of a good system of taxation, 
have, since the last reforms by Mr. 
Gladstone, been got rid of. Among 
these are all duties on ordinary articles 
of food,* whether for human beings or 
for cattle ; those on timber, as falling 
on the materials of lodging, which is 
one of the necessaries of life; all' 
duties on the metals, and on imple¬ 
ments made of them; taxes on soap, 
which is a necessary of cleanliness, 
and on tallow, the material both of 
that and of some other necessaries; 

* Except the shilling per quarter duty ou 
corn, ostensibly for registration, and scarcely 
felt as a burthen. 





526 BOOK Y. CHAPTER VII. 1. 


the tax on paper, an indispensable 
instrument of almost all business and 
of most kinds of instruction. The 
duties which now yield nearly the 
whole of the customs and excise re¬ 
venue, those on sugar, coffee, tea, 
wine, beer, spirits, and tobacco, are in 
themselves, where a large amount of 
revenue is necessary, extremely pro¬ 
per taxes; but at present grossly un¬ 
just, from the disproportionate weight 
with which they press on the poorer 
classes ; and some of them (those on 
spirits and tobacco) are so high as to 
cause a considerable amount of smug¬ 
gling. It is probable that most of 
these taxes might bear a great reduc¬ 
tion without any material loss of 
revenue. In what manner the finer 
articles of manufacture, consumed by 
the rich, .might most advantageously 


be taxed, I must leave to be decided 
by those who have the requisite prac¬ 
tical knowledge. The difficulty would 
be, to effect it without an inadmissible 
degree of interference with production. 
In countries which, like the United 
States, import the principal part of 
the finer manufactures which they 
consume, there is little difficulty in 
the matter: and even where nothing 
is imported but the raw material, 
that may be taxed, especially the 
qualities of it which are exclusively 
employed for the fabrics used by the 
richer class of consumers. Thus, in 
England a high custom duty on raw 
silk would be consistent with prin¬ 
ciple ; and it might perhaps be prac¬ 
ticable to tax the finer qualities of 
cotton or linen yarn, whether spun in 
the country itself or imported. 




CHAPTER YH. 

OP A NATIONAL DEBT. 


§ 1. The question must now be 
considered, how far it is right or ex¬ 
pedient to raise money for the purposes 
of government, not by laying on taxes 
to the amount required, but by taking 
a portion of the capital of the country 
in the form of a loan, and charging the 
public revenue with only the interest. 
.Nothing needs be said about providing 
for temporary wants by taking up 
money; for instance, by an issue of 
exchequer bills, destined to be paid off, 
at furthest in a year or two, from the 
proceeds of the existing taxes. This 
is a convenient expedient, and when 
the government does not possess a 
treasure or hoard, is often a necessary 
one, on the occurrence of extraordinary 
expenses, or of a temporary failure in 
the ordinary sources of revenue. What 
we have to discuss is the propriety of 
contracting a national debt of a per¬ 
manent character; defraying the ex¬ 
penses of a war, or of any season of 
difficulty, by loans, to be redeemed 


either very gradually and at a distant 
period, or not at all. 

This question has already been 
touched upon in the First Book.* We 
remarked, that if the capital taken in 
loans is abstracted from funds either 
engaged in production, or destined to 
be employed in it, their diversion from 
that purpose is equivalent to taking 
the amount from the wages of the 
labouring classes. Borrowing, in this 
case, is not a substitute for raising the 
supplies within the year. A govern¬ 
ment which borrows does actually take 
the amount within the year, and that 
too by a tax exclusively on the labour¬ 
ing classes: than which it could have 
done nothing worse, if it had supplied 
its wants by avowed taxation ; and in 
that case the transaction, and its evils, 
would have ended with the emergency; 
while by the circuitous mode adopted, 
the value exacted from the labourers is 
gained, not by the state, but by the 
* Supra, p. 49, 





A NATIONAL DEBT. 


527 


employers of labour, the state remain¬ 
ing charged with the debt besides, and 
with its interest in perpetuity. The 
system of public loans, in such circum¬ 
stances, may be pronounced the very 
worst which, in the present state of 
civilization, is still included in the 
catalogue of financial expedients. 

We however remarked that there 
are other circumstances in which loans 
are not chargeable with these per¬ 
nicious consequences: namely, first, 
when what is borrowed is foreign capi¬ 
tal, the overflowings of the general ac¬ 
cumulation of the world; or, secondly, 
when it is capital which either would 
not have been saved at all unless this 
mode of investment had been open to 
it, or after being saved, would have 
been wasted in unproductive enter¬ 
prises, or sent to seek employment in 
foreign countries. When the progress 
of accumulation has reduced profits 
either to the ultimate or to the practi¬ 
cal minimum,—to the rate, less than 
which would either put a stop to the 
increase of capital, or send the whole 
of the new accumulations abroad; 
government may annually intercept 
these new accumulations, without 
trenching on the employment or wages 
of the labouring classes in the country 
itself, or perhaps in any other country. 
To this extent, therefore, the loan 
system may be carried, without being 
liable to the utter and peremptory con¬ 
demnation which is due to it when it 
overpasses this limit. What is wanted 
is an index to determine whether, in 
any given series of years, as during 
the last great war for example, the 
limit has been exceeded or not. 

Such an index exists, at once a cer¬ 
tain and an obvious one. Did the 
government, by its loan operations, 
augment the rate of interest? If it 
only opened a channel for capital 
which would not otherwise have been 
accumulated, or which, if accumulated, 
would not have been employed within 
the country; this implies that the 
capital, which the government took 
and expended, could not have found 
employment at the existing rate of in¬ 
terest. So long as the loans do no 
more than absorb this surplus, they 


prevent any tendency to a fall of the 
rate of interest, but they cannot occa ¬ 
sion any rise. When they do raise the 
rate of interest, as they did in a most 
extraordinary degree during the French 
war, this is positive proof that the go¬ 
vernment is a competitor for capital 
with the ordinary channels of produc¬ 
tive investment, and is carrying off, 
not merely funds which would not, but 
funds which would, have found produc¬ 
tive employment within the country. 
To the full extent, therefore, to which 
the loans of government, during the 
war, caused the rate of interest to ex¬ 
ceed what it was before, and what it 
has been since, those loans are charge¬ 
able with all the evils which have been 
described. If it be objected that in¬ 
terest only rose because profits rose, I 
reply that this does not weaken, but 
strengthens, the argument. If the 
government loans produced the rise of 
profits by the great amount of capital 
which they absorbed, by what means 
can they have had this effect, unless 
by lowering the wages of labour? It 
will perhaps be said, that what kept 
profits high during the war was not the 
drafts made on the national capital by 
the loans, but the rapid progress of in¬ 
dustrial improvements. This, in a 
great measure, was the fact; and it no 
doubt alleviated the hardship to the 
labouring classes, and made the finan¬ 
cial system which was pursued less 
actively mischievous, but not less con¬ 
trary to principle. These very im¬ 
provements in industry, made room for 
a larger amount of capital; and the 
government, by draining away a great 
part of the annual accumulations, did 
not indeed prevent that capital from 
existing ultimately, (for it started into 
existence with great rapidity after the 
peace,) but prevented it from existing 
at the time, and subtracted just so 
much, while the war lasted, from dis¬ 
tribution among productive labourers. 
If the government had abstained from 
taking this capital by loan, and had 
allowed it to reach the labourers, but 
had raised the supplies which it re¬ 
quired by a direct tax on the labouring 
classes, it would have produced (in 
every respect but the expense and in- 



BOOK Y. CHAPTER VII. § 2. 


528 

convenience of collecting the tax) the 
very same economical effects which it 
did produce, except that we should not 
now have had the debt. The course it 
actually took was therefore worse than 
the very worst mode which it could 
possibly have adopted of raising the 
supplies within the year: and the only 
excuse, or justification, which it admits 
of, (so far as that excuse could be truly 
pleaded) was hard necessity; the im¬ 
possibility of raising so enormous an 
annual sum by taxation, without re¬ 
sorting to taxes which from their odi¬ 
ousness, or from the facility of evasion, 
it would have been found impracticable 
to enforce. 

When government loans are limited 
to the overflowings of the national 
capital, or to those accumulations 
which would not take place at all un¬ 
less suffered to overflow, they are at 
least not liable to this grave condem¬ 
nation : they occasion no privation to 
any one at the time, except by the 
payment of the interest, and may even 
be beneficial to the labouring class 
during the term of their expenditure, 
by employing in the direct purchase of 
labour, as that of soldiers, sailors, &c., 
funds which might otherwise have 
quitted the country altogether. In 
this case therefore the question really 
is, what it is commonly supposed to be 
in all cases, namely, a choice between 
a great sacrifice at once, and a small 
one indefinitely prolonged. On this 
matter it seems rational to think, that 
the prudence of a nation will dictate 
the same conduct as the prudence of 
an individual; to submit to as much of 
the privation immediately, as can 
easily be borne, and only when any 
further burthen would distress or cripple 
them too much, to provide for the re¬ 
mainder by mortgaging their future 
income. It is an excellent maxim to 
make present resources suffice for pre¬ 
sent wants; the future will have its 
own wants to provide for. On the 
other hand, it may reasonably be taken 
into consideration that in a country 
increasing in wealth, the necessary ex¬ 
penses of government do not increase 
in the same ratio as capital or popula¬ 
tion ; any burthen, therefore, is always 


less and less felt: and since those ex¬ 
traordinary expenses of government 
which are fit to be incurred at all, are 
mostly beneficial beyond the existing 
generation, there is no injustice in 
making posterity pay a part of the 
price, if the inconvenience -would be 
extreme of defraying the whole of it by 
the exertions and sacrifices of the 
generation which first incurred it. 

§ 2. When a country, wisely or 
unwisely, has burthened itself with a 
debt, is it expedient to take steps for 
redeeming that debt ? In principle it 
is impossible not to maintain the af¬ 
firmative. It is true that the payment 
of the interest, when the creditors are 
members of the same community, is 
no national loss, but a mere transfer. 
The transfer, however, being compul¬ 
sory, is a serious evil, and the raising 
a great extra revenue by any system 
of taxation necessitates so much ex¬ 
pense, vexation, disturbance of the 
channels of industry, and other mis¬ 
chiefs over and above the mere pay¬ 
ment of the money wanted by the- 
j government, that to get rid of the 
i necessity of such taxation is at all 
times worth a considerable effort. The 
same amount of sacrifice which would 
have been worth incurring to avoid 
contracting the debt, it is worth while 
to incur, at any subsequent time, for 
the purpose of extinguishing it. 

Two modes have been contemplated 
ot paying off a national debt: either 
at once by a general contribution, or 
gradually bv a surplus revenue. The 
first would be incomparably the best, 
if it were practicable ; and it would 
| be practicable if it could justly be 
! done by assessment on property alone, 
j If property bore the whole interest of 
! the debt, property might, with great 
i advantage to itself, pay it off; since 
this would be merely surrendering to 
a creditor the principal sum, the whole 
: annual proceeds of which were already 
| his by law; and would be equivalent 
! to what a landowner does when he 
I sells part of his estate, to free the re- 
j mainder from a mortgage. But pro- 
! perty, it needs hardly be said, does 
| not pay, and cannot justly be required. 






A NATIONAL DEBT. . 529 


to pay, the whole interest of the debt. 
Some indeed affirm that it can, on the 
plea that the existing generation is 
only hound to pay the debts of its pre¬ 
decessors from the assets it has re¬ 
ceived from them, and not from the 
produce of its own industry. But has 
no one received anything from pre¬ 
vious generations except those who 
have succeeded to property? Is the 
whole difference between the earth as 
it is, wdth its clearings and improve¬ 
ments, its roads and canals, its towns 
and manufactories, and the earth as it 
was when the first human being set 
foot on it, of no benefit to any but 
those who are called the owners of the 
soil? Is the capital accumulated by 
the labour and abstinence of all former 
generations of no advantage to any 
but those who have succeeded to the 
legal ownership of part of it ? And 
have we not inherited a mass of ac¬ 
quired knowledge, both scientific and 
empirical, due to the sagacity and 
industry of those who preceded us, 
the benefits of which are the common 
wealth of all ? Those who are born to 
the ownership of property have, in 
addition to these common benefits, a 
separate inheritance, and to this differ¬ 
ence it is right that advertence should 
be had in regulating taxation. It be¬ 
longs to the general financial system 
of the country to take due account of 
this principle, and I have indicated, as 
in my opinion a proper mode of taking 
account of it, a considerable tax on 
legacies and inheritances. Let it be 
determined directly and openly what 
is due from property to the state, and 
from the state to property, and let the 
institutions of the state be regulated 
accordingly. Whatever is the fitting 
contribution from property to the ge¬ 
neral expenses of the state, in the 
same, and in no greater proportion 
should it contribute towards either 
the interest or the repayment of the 
national debt. 

This, however, if admitted, is fatal 
to any scheme for the extinction of the 
debt by a general assessment on the 
community. Persons of property could 
pay their share of the amount by a 
sacrifice of property, and have the 
1*.E. 


same net income as before ; but if 
those who have no accumulations, but 
only incomes, were required to make 
up by a single payment the equivalent 
of the annual charge laid on them by 
the taxes maintained to pay the inte¬ 
rest of the debt, they could only do so 
by incurring a private debt equal to 
their share of the public debt; while, 
from the insufficiency, in most cases, 
of the security which they could give, 
the interest would amount to a much 
larger annual sum than their share of 
that now paid by the state. Besides, 
a collective debt defrayed by taxes, 
has over the same debt parcelled out 
among individuals, the immense ad¬ 
vantage, that it is virtually a mutual 
insurance among the contributors. If 
the fortune of a contributor diminishes, 
his taxes diminish ; if he is ruined, 
they cease altogether, and his portion 
of the debt is wholly transferred to the 
solvent members of the community. 
If it were laid on him as a private 
obligation, he would still be liable to 
it even when penniless. 

When the state possesses property, 
in land or otherwise, which there are 
not strong reasons of public utility for 
its retaining at its disposal, this should 
be employed, as far as it will go, in 
extinguishing debt. Any casual gain, 
or godsend, is naturally devoted to the 
same purpose. Beyond this, the only 
mode which is both just and feasible, 
of extinguishing or reducing a na¬ 
tional debt, is by means of a surplus 
revenue. 

§ 3. The desirableness, per se, of 
maintaining a surplus for this purpose 
does not, I think, admit of a doubt. 
We sometimes, indeed, hear it said 
that the amount should rather be left 
to <( fructify in the pockets of the 
people.” This is a good argument, as 
far as it goes, against levying taxes 
unnecessarily for purposes of unpro¬ 
ductive expenditure, but not against 
paying off a national debt. For, what 
is meant by the word fructify ? If it 
means anything, it means productive 
employment; and as an argument 
against taxation, we must understand 
it to assert, that if the amount were 

M M 






5 30 


BOOK Y. CHAPTER VII. § 3. 


left with the people they would save 
it, and convert it into capital. It is 
probable, indeed, that they would save 
a part, hot extremely improbable that 
they would save the whole : while if 
taken by taxation, and employed in 
paying off' debt, the whole is saved, 
and made productive. To the fund- 
holder who receives the payment it is 
already capital, not revenue, and he 
will make it “ fructify,” that it may 
continue to afford him an income. 
The objection, therefore, is not only 
groundless, bnt the real argument is 
on the other side : the amount is much 
more certain of fructifying if it is not 
“ left in the pockets of the people.” 

It. is not, however, advisable in all 
cases to maintain a surplus revenue 
for the extinction of debt. The ad¬ 
vantage of paying off the national 
debt of Great Britain for instance, is 
that it would enable us to get rid of 
the worse half of our taxation. But 
of this worse half some portions must 
be worse than others, and to get rid of 
those would be a greater benefit pro¬ 
portionally than to get rid of the rest. 
If renouncing a surplus revenue would 
enable us to dispense with a tax, we 
ought to consider the very worst of all 
our taxes as precisely the one which 
we are keeping up for the sake of ulti¬ 
mately abolishing taxes not so bad as 
itself. In a country advancing in 
wealth, whose increasing revenue gives 
it the power of ridding itself from time 
to time of the most inconvenient por¬ 
tions of its taxation, I conceive that 
the increase of revenue should rather 
be disposed of by taking off taxes, than 
by licpiidating debt, as long as any 
very objectionable imposts remain. In 
the present state of England, there¬ 
fore, I hold it to be good policy in the 
government, when it has a surplus of 
an apparently permanent character, 
to take off taxes, provided these are 
rightly selected. Even when no taxes 
remain but such as are not unfit to 
form part of a permanent system, it is 
wise to continue the same policy by 
experimental reductions of those taxes, 
until the point is discovered at which 
a given amount of revenue can be 
raised with the smallest pressure on 


the contributors. After this, such sur¬ 
plus revenue as might arise from any 
further increase of the produce of the 
taxes, should not, I conceive, be re¬ 
mitted, but applied to the redemption 
of debt. Eventually, it might be ex¬ 
pedient to appropriate the entire pro¬ 
duce of particular taxes to this pur¬ 
pose ; since there would be more assu¬ 
rance that the liquidation would be 
persisted in, if the fund destined to it 
were kept apart, and not blended with 
the general revenues of the state. The- 
succession duties would be peculiarly 
suited to such a purpose, since taxes 
paid as they are, out of capital, -would, 
be better employed in reimbursing 
capital than in defraying current ex¬ 
penditure. If this separate appropria¬ 
tion were made, any surplus afterwards 
arising from the increasing produce of 
the other taxes, and from the saving 
of interest on the successive portions 
of debt paid off, might form a ground 
for a remission of taxation. 

It has been contended that some 
amount of national debt is desirable, 
and almost indispensable, as an in¬ 
vestment for the savings of the poorer 
or more inexperienced part of the 
community. Its convenience in that 
respect is undeniable; but (besides 
that the progress of industry is gradu¬ 
ally affording other modes of invest¬ 
ment almost as safe and untrouble- 
some, such as the shares or obligations 
of great public companies) the only 
real superiority of an investment in 
the funds consists in the national 
guarantee, and this could be afforded 
by other means than that of a public 
debt, involving compulsory taxation. 
One mode which would answer the 
purpose, would be a national bank of 
deposit and discount, with ramifica¬ 
tions throughout the country; which 
might receive any money confided to 
it, and either fund it at a fixed rate of 
interest, or allow interest on a floating 
balance, like the joint stock banks; 
the interest given being of course 
lower than the rate at which indi¬ 
viduals can borrow, in proportion to 
the greater security of a government 
investment; and the expenses of the 
establishment being defrayed by the 



ORDINARY FUNCTIONS OF GOVERNMENT. 531 


difference between the interest which 
the bank would pay, and that which it 
would obtain, by lending its deposits 
on mercantile, landed, or other se¬ 
curity. There are no insuperable ob¬ 
jections in principle, nor, I should 
think, in practice, to an institution of 
this sort, as a means of supplying the 
same convenient mode of investment 


now afforded by the public funds. It 
would constitute the state a great in¬ 
surance company, to insure that part 
of the community who live on the 
interest of their property, against the 
risk of losing it by the bankruptcy of 
those to whom they might otherwise 
be under the necessity of confiding 
it. 


CHAPTER VIII. 

OF THE ORDINARY FUNCTIONS OF GOVERNMENT, CONSIDERED AS TO 

THEIR ECONOMICAL EFFECTS. 


§ 1. Before we discuss the line of 
demarcation between the. things with 
which government should, and those 
with which they should not, directly 
interfere, it is necessary to consider the 
economical effects, whether of a bad or 
of a good complexion, arising from the 
manner in which they acquit them¬ 
selves of the duties which devolve on 
them in all societies, and which no one 
denies to be incumbent on them. 

The first of these is the protection 
of person and property. There is no 
need to expatiate on the influence ex¬ 
ercised over the economical interests 
of society by the degree of complete¬ 
ness with 'which this duty of govern¬ 
ment is performed. Insecurity of person 
and property, is as much as to say, un¬ 
certainty of the connexion between all 
human exertion or sacrifice, and the 
attainment of the ends for'the sake of 
which they are undergone. It means, 
uncertainty whether they who sow 
shall reap, whether they who produce 
shall consume, and they who spare to¬ 
day shall enjoy to-morrow. It means, 
not only that labour and frugality are 
not the road to acquisition, but that 
violence is. When person and pro¬ 
perty are to a certain degree insecure, 
all the possessions of the weak are at 
the mercy of the strong. No one can 
keep what he has produced, unless he 
is more capable of defending it, than 
others who give no part of their time 


and exertions to useful industry are of 
taking it from him. The productive 
classes, therefore, when the insecurity 
surpasses a certain point, being un¬ 
equal to their own protection against 
the predatory population, are obliged 
to place themselves individually in a 
state of dependence on some member 
of the predatory class, that it may be- 
his interest to shield them from all de¬ 
predation except his own. In this 
manner, in the Middle Ages, allodial 
property generally became feudal, and 
numbers of the poorer freemen volun¬ 
tarily made themselves and their pos¬ 
terity serfs of some military lord. 

Nevertheless, in attaching to this 
great requisite, security of person and 
property, the importance which is 
justly due to it, we must not forget 
that even for economical purposes there 
are other things quite as indispensable, 
the presence of which will often make 
up for a very considerable degree of 
imperfection in the protective arrange¬ 
ments of government. As was ob¬ 
served in a previous chapter,* the free 
cities of Italy, Flanders, and the 
Hanseatic league, were habitually in 
a state of such internal turbulence,, 
varied by such destructive external 
wars, that person and property enjoyed 
very imperfect protection; yet during 
several centuries they increased rapidly 
in wealth and prosperity, brought many 
* Supra, p. 70. 

MM2 






BOOK Y. CHAPTER YIII. § 2. 


532 

of the industrial arts to a high degree 
of advancement, carried on distant and 
dangerous voyages of exploration and 
commerce with extraordinary success, 
became an overmatch in power for the 
greatest feudal lords, and could defend 
themselves even against the sovereigns 
of Europe: because in the midst of 
turmoil and violence, the citizens of 
those towns enjoyed a certain rude 
freedom, under conditions of union and 
co-operation, which, taken together, 
made them a brave, energetic, and 
high-spirited people, and fostered a 
great amount of public spirit and 
patriotism. The prosperity of these 
and other free states in a lawless age, 
shows that a certain degree of in¬ 
security, in some combinations of cir¬ 
cumstances, has good as well as bad 
effects, by making energy and prac¬ 
tical ability the conditions of safety. 
Insecurity paralyzes, only when it is 
such in nature and in degree, that no 
energy, of which mankind in general 
are capable, affords any tolerable means 
of self-protection. And this is a main 
reason why oppression by the govern¬ 
ment, whose power is generally irre¬ 
sistible by any efforts that can be 
made by individuals, has so much 
more baneful an effect on the springs 
of national prosperity, than almost 
any degree of lawlessness and turbu¬ 
lence under free institutions. Nations 
have acquired some wealth, and made 
some progress in improvement, in 
states of social union so imperfect as 
to border on anarchy: but no coun¬ 
tries in which the people were exposed 
without limit to arbitrary exactions 
from the officers of government, ever 
yet continued to have industry or 
wealth. A few generations of such a 
government never fail to extinguish 
both. Some of the fairest, and once 
the most prosperous, regions of the 
earth, have, under the Roman and 
afterwards under the Turkish domi¬ 
nion, been reduced to a desert, solely 
by that cause. I say solely, because 
they would have recovered with the 
utmost rapidity, as countries always 
do, from the devastations of war, or 
any other temporary calamities. Dif¬ 
ficulties and hardships are often but 


an incentive to exertion : what is fatal 
to it, is the belief that it will not be 
suffered to produce its fruits. 

§ 2. Simple over-taxation by go¬ 
vernment, though a great evil, is not 
comparable in the economical part of 
its mischiefs to exactions much more 
moderate in amount, which either 
subject the contributor to the arbi¬ 
trary mandate of government officers, 
or are so laid on as to place skill, in¬ 
dustry, and frugality at a disadvantage. 
The burthen of taxation in our own 
country is very great, yet as every one 
knows its limit, and is seldom made to 
pay more than he expects and cal¬ 
culates on, and as the modes of taxa¬ 
tion are not of such a kind as much to 
impair the motives to industry and 
economy, the sources of prosperity are 
little diminished by the pressure of 
taxation; they may even, as some 
think, be increased, by the extra exer¬ 
tions made to compensate for the pres¬ 
sure of the taxes. But in the bar¬ 
barous despotisms of many countries 
of the East, where taxation consists in 
fastening upon those who have suc¬ 
ceeded in acquiring something, in 
order to confiscate it, unless the pos¬ 
sessor buys its release by submitting 
to give some large sum as a com¬ 
promise, we cannot expect to find 
voluntary industry, or wealth derived 
from any source but plunder. And 
even in comparatively civilized coun¬ 
tries, bad modes of raising a revenue 
have had effects similar in kind, though 
in an inferior degree. French writers 
before the Revolution represented the 
taille as a'main cause of the back¬ 
ward state of agriculture, and of the 
wretched condition of the rural popu¬ 
lation ; not from its amount, but be¬ 
cause, being proportioned to the visible 
capital of the cultivator, it gave him a 
motive for appearing poor, which suf¬ 
ficed to turn the scale in favour of in¬ 
dolence. The arbitrary powers also of 
fiscal officers, of intendants and mh- 
delegues, were more destructive of pros¬ 
perity than a far larger amount of 
exactions, because they destroyed se¬ 
curity: there was a marked superiority 
in the condition of the districts pos- 




ORDINARY FUNCTIONS OF GOVERNMENT. 533 


sessing Provincial States, which were 
exempt from this scourge. The uni¬ 
versal venality ascribed to Russian 
functionaries, must be an immense 
drag on the capabilities of economical 
improvement possessed so abundantly 
by the Russian empire ; since the emo¬ 
luments of public officers must depend 
on the success with which they can 
multiply vexatious, for the purpose of 
being bought off by bribes. 

Yet mere excess of taxation, even 
when not aggravated by uncertainty, 
is, independently of its injustice, a 
serious economical evil. It may be 
carried so far as to discourage industry 
by insufficiency of reward. Very long 
before it reaches this point, it prevents 
or greatly checks accumulation, or 
causes the capital accumulated to be 
sent for investment to foreign coun- 
tries. Taxes which fall on profits, 
even though that kind of income may 
not pay more than its just share, ne¬ 
cessarily diminish the motive to any 
saving, except for investment in foreign 
countries where profits are higher. 
Holland, for example, seems to have 
long ago reached the practical mini¬ 
mum of profits: already in the last 
century her wealthy capitalists had a 
great part of their fortunes invested in 
the loans and joint-stock speculations 
of other countries: and this low rate 
of profit is ascribed to the heavy taxa¬ 
tion, which had been in some measure 
forced on her by the circumstances of 
her position and history. The taxes 
indeed, besides their great amount, 
were many of them on necessaries, a 
kind of tax peculiarly injurious to in¬ 
dustry and accumulation. But when 
the aggregate amount of taxation is 
very great, it is inevitable that recourse 
must be had for part of it to taxes of an 
objectionable character. And any taxes 
on consumption, when heavy, even if 
not operating on profits, have some¬ 
thing of the same effect, by driving 
persons of moderate means to live 
abroad, often taking their capital with 
them. Although I by no means join 
with those political economists who 
think no state of national existence 
desirable in which there is not a rapid 
increase of wealth, I cannot overlook 


the many disadvantages to an inde¬ 
pendent nation from being brought 
prematurely to a stationary state, 
while the neighbouring countries con¬ 
tinue advancing. 

§ 3. The subject of protection to 
person and property, considered as af¬ 
forded by government, ramifies widely, 
into a number of indirect channels. It 
embraces, for example, the whole sub¬ 
ject of the perfection or inefficiency of 
the means provided for the ascertain¬ 
ment of rights and the redress of in¬ 
juries. Person and property cannot be 
considered secure where the adminis¬ 
tration of justice is imperfect, uiher 
from defect of integrity or capacity iu 
the tribunals, or because the delay, 
vexation, and expense accompanying 
their operation impose a heavy tax on 
those who appeal to them, and make 
it preferable to submit to any en¬ 
durable amount of the evils which they 
are designed to remedy. In England 
there is no fault to be found with the 
administration of justice, in point of 
pecuniary integrity; a result wh ch the 
progress of social improvement may 
also be supposed to have brought about 
in several other nations of Europe. 
But legal and judicial imperfections of 
other kinds are abundant; and, in 
England especially, are a large abate¬ 
ment from the value of the services 
which the government renders back to 
the people in return for our enormous 
taxation. In the first place, the in¬ 
cognoscibility (as Bentham termed it) 
of the law, and its extreme uncer¬ 
tainty, even to those who best know it, 
render a resort to the tribunals often 
necessary for obtaining justice, when, 
there being no dispute as to facts, no 
litigation ought to be required. In the 
next place, the procedure of the tri¬ 
bunals is so replete with delay, vexa¬ 
tion, and expense, that the price at 
which justice is at last obtained is an 
evil outweighing a very considerable 
amount of injustice; and the wrong 
side, even that which the law considers 
such, has many chances of gaining its 
point, through the abandonment of 
litigation by the other party for want 
of funds, or through a compromise in 






534 BOOK V. CHAPTER VIII. § 3. 


which a sacrifice is made of just rights 
to terminate the suit, or through some 
technical quirk, whereby a decision is 
obtained on some other ground than 
the merits. This last detestable inci¬ 
dent often happens without blame to 
the judge, under a system of law, of 
which a great part rests on no rational 
principles adapted to the present state 
of society, but was originally founded 
partly on a kind of whims and conceits, 
and partly on the principles and inci¬ 
dents of feudal tenure, (which now sur¬ 
vive only as legal fictions;) and has 
only been very imperfectly adapted, as 
cases arose, to the changes which had 
taken place in society. Of all parts of 
the English legal system, the Court of 
Chancery, which has the best substan¬ 
tive law, has been incomparably the 
worst as to delay, vexation, and ex¬ 
pense ; and this is the only tribunal 
for most of the classes of cases which 
are in their nature the most compli¬ 
cated, such as cases of partnership, 
and the great range and variety of 
cases which come under the denomina¬ 
tion of trust. The recent reforms 
in this Court have abated the mis¬ 
chief but are still far from having 
removed it. 

Fortunately for the prosperity of 
England, the greater part of the mer¬ 
cantile law is comparatively modern, 
and was made by the tribunals, by the 
simple process of recognising and 
giving force of law to the usages which, 
from motives of convenience, had 
grown up among merchants them¬ 
selves : so that this part of the law, at 
least, was substantially made by those 
who Avere most interested in its good¬ 
ness : while the defects of the tribu¬ 
nals have been the less practically 
pernicious in reference to commer¬ 
cial transactions, because the im¬ 
portance of credit, which depends on 
character, renders the restraints of 
opinion (though, as daily experience 
proves, an insufficient) yet a very 
powerful, protection against those 
forms of mercantile dishonesty which 
are generally recognised as such. 

The imperfections of the law, both 
in its substance and in its procedure, 
fall heaviest upon the interests con¬ 


nected with Avliat is technically called 
real property; in the general language 
of European jurisprudence, imiuOA r eable 
property. With respect to all this 
portion of the wealth of the community, 
the law fails egregiously in the pro¬ 
tection which it undertakes to pro¬ 
vide. It fails, first, by the uncertainty, 
and the maze of technicalities, which, 
make it impossible for any one, at 
however great an expense, to possess a 
title to land which he can positively 
know to be unassailable. It fails, 
secondly, in omitting to provide due 
evidence of transactions, by a proper 
registration of legal documents. It 
fails, thirdly, by creating a necessity 
for operose and expensive instruments 
and formalities (independently of fiscal 
burthens) on occasion of the purchase 
and sale, or even the lease or mortgage, 
of immoveable property. And, fourthly, 
it fails by the intolerable expense and 
delay of laAv proceedings, in almost all 
cases in which real property is con¬ 
cerned. There is no doubt that the 
greatest sufferers by the defects of the 
higher courts of civil law are the land- 
OAvncrs. Legal expenses, either those 
of actual litigation, or of the prepara¬ 
tion of legal instruments, form, I 
apprehend, no inconsiderable item in 
the annual expenditure of most per¬ 
sons of large landed property ; and the 
saleable value of their land is greatly 
impaired, by the difficulty of giving to 
the buyer complete confidence in the 
title; independently of the legal ex¬ 
penses which accompany the transfer. 
Yet the landowners, though they have 
been masters of the legislation of 
England, to say the least, since 1688, 
have never made a single move in the 
direction of law reform, and have 
been strenuous opponents of some of 
the improvements of which they Avould 
more particularly reap the benefit; 
especially that great one of a regis¬ 
tration of contracts affecting land, 
Avhich when proposed by a Commis¬ 
sion of eminent real property lawyers, 
and introduced into the House of 
Commons by Lord Campbell, Avas so 
offensive to the general body of land¬ 
lords, and was rejected by so large a 
majority, as to have long discouraged 




ORDINARY FUNCTIONS OF GOVERNMENT. 535 


any repetition of the attempt.* This 
irrational hostility to improvement, in 
a case in which their own interest 
would he the most benefited by it, 
must bo ascribed to an intense timi¬ 
dity on the subject of their titles, 
generated by the defects of the very 
law which they refuse to alter; and 
to a conscious ignorance, and inca¬ 
pacity of judgment, on all legal sub¬ 
jects, which makes them helplessly 
defer to the opinion of tlieir profes¬ 
sional advisers, heedless of the fact 
that every imperfection of the law, in 
proportion as it is burthensome to 
them, brings gain to the lawyer. 

In so far as the defects of legal 
arrangements are a mere burthen on 
the landowner, they do not much 
affect the sources of production; but 
the uncertainty of the title under 
which land is held, must often act as 
a great discouragement to the expen¬ 
diture of capital in its improvement; 
and the expense of making transfers, 
operates to prevent land from coming 
into the hands of those who would use 
it to most advantage; often amount¬ 
ing, in the case of small purchases, to 
more than the price of the land, and 
tantamount, therefore, to a prohibition 
of the purchase and sale of land in 
small portions, unless in exceptional 
■circumstances. Such purchases, how¬ 
ever, are almost everywhere extremely 
desirable, there being hardly any 
country in which landed property is 
not either too much or too little sub¬ 
divided, requiring either that great 
estates should be broken down, or 
that small ones should be bought up 
and consolidated. To make land as 
easily transferable as stock, would be 
one of the greatest economical improve¬ 
ments which could be bestowed on a 
country; and has been shown, again 
and again, to have no insuperable 
difficulty attending it. 

Besides the excellences or defects 
that belong to the law and judicature 
of a country as a system of arrange¬ 
ments for attaining direct practical 

* Lord Westbury’s recent Act is a ma¬ 
terial mitigation of this grievous defect in 
English law, and will probably lead to fur¬ 
ther improvements. 


ends, much also depends, even in an 
economical point of view, upon the 
moral influences of the law. Enough 
has been said in a former place,+ on 
the degree in which both the indus¬ 
trial and all other combined opera¬ 
tions of mankind depend for efficiency 
on their being able to rely on one 
another for probity and fidelity to 
engagements; from which we see how 
greatly even the economical prosperity 
of a country is liable to be affected, by 
anything in its institutions by which 
either integrity and trustworthiness, or 
the contrary qualities, are encouraged. 
The law everywhere ostensibly favours 
at least pecuniary honesty and the 
faith of contracts; but if it affords 
facilities for evading those obligations, 
by trick and chicanery, or by the un¬ 
scrupulous use of riches in instituting 
unjust or resisting just litigation; it* 
there are ways and means by which 
persons may attain the ends of roguery, 
under the apparent sanction of the 
law; to that extent the law is demo¬ 
ralizing, even in regard to pecuniary 
integrity. And such cases are, un¬ 
fortunately, frequent under the English 
system. If, again, the law, by a mis¬ 
placed indulgence, protects idleness or 
prodigality against their natural con¬ 
sequences, or dismisses crime with 
inadequate penalties, the effect, both 
on the prudential and on the social 
virtues, is unfavourable. When the 
law, by its own dispensations and in¬ 
junctions, establishes injustice between 
individual and individual; as all laws 
do which recognise any form of slavery ; 
as the laws of all countries do, though 
not all in the same degree, in respect 
to the family relations; and as the 
laws of many countries do, though in 
still more unequal degrees, as between 
rich and poor; the effect on the moral 
sentiments of the people is still more 
disastrous. But these subjects intro¬ 
duce considerations so much larger 
and deeper than those of political 
economy, that I only advert to them 
in order not to pass wholly unnoticed 
things superior in importance to those 
of which I treat. 

t Supra, p. 68. 





536 


BOOK V. CHAPTEK IX. § 1. 


CHAPTEB IX. 

THE SAME SUBJECT CONTINUED. 


§ 1. Having spoken thus far of the 
effects produced by the excellences or 
defects of the general system of the 
law, I shall now touch upon those re¬ 
sulting from the special character of 
particular parts of it. Asa selection 
must be made, I shall confine myself 
to a few leading topics. The portions 
of the civil law of a country which are 
of most importance economically (next 
to those which determine the status of 
the labourer, as slave, serf, or free), 
are those relating to the two subjects 
of Inheritance and Contract. Of the 
laws relating to contract, none are 
more important economically than the 
laws of partnership, and those of 
insolvency. It happens that on all 
these three points, there is just ground 
for condemning some of the provisions 
of the English law. 

With regard to Inheritance, I have, 
in an early chapter, considered the 
general principles of the subject, and 
suggested what appear to me to be, 
putting all prejudices apart, the best 
dispositions which the law could adopt. 
Freedom of bequest as the general 
rule, but limited by two things: first, 
that if there are descendants, who, 
being unable to provide for themselves, 
would become burthensome to the 
state, the equivalent of whatever the 
state would accord to them should be 
reserved from the jn-operty for their 
benefit: and secondly, that no one 
person should be permitted to acquire 
by inheritance, more than the amount 
of a moderate independence. In case of 
intestacy, the whole property to escheat 
to the state: which should be bound 
to make a just and reasonable provi¬ 
sion for descendants, that is, such a 
provision as the parent or ancestor 
ought to have made, their circum¬ 
stances, capacities, and mode of bring¬ 
ing up being considered. 

The laws of inheritance, however, 
have probably several phases of im¬ 


provement to go through, before ideas 
so far removed from present modes of 
thinking will be taken into serious con¬ 
sideration : and as, among the recog¬ 
nised modes of determining the suc¬ 
cession to property, some must be 
better and others worse, it is necessary 
to consider which of them deserves- 
the preference. As an intermediate 
course, therefore, I would recommend 
the extension to all property, of the 
present English law of inheritance 
affecting personal property (freedom of 
bequest, and, in case of intestacy, equal 
division): except that no rights should 
be acknowledged in collaterals, and 
that the properly of those who have 
neither descendants nor ascendants, 
and make no will, should escheat to 
the state. 

The laws of existing nations deviate 
from these maxims in two opposite 
ways. In England, and in most of 
the countries where the influence of 
feudality is still felt in the laws, one 
of the objects aimed at in respect to 
land and other immoveable property, is 
to keep it together hi large masses: 
accordingly, in cases of intestacy, it 
passes, generally speaking (for the 
local custom of a few places is dif¬ 
ferent), exclusively to the eldest son. 
And though the rule of primogeniture 
is not binding on testators, who in 
England have nominally the power of 
bequeathing their property as they 
please, any proprietor may so exercise 
this power as to deprive his successors 
of it, by entailing the property on one 
particular line of his descendants: 
which, besides preventing it from 
passing by inheritance in any other 
than the prescribed manner, is at¬ 
tended with the incidental conse¬ 
quence of precluding it from being 
sold; since each successive possessor, 
having only a life interest in the pro¬ 
perty, cannot alienate it for a longer 
period than his own life. In some 



INHERITANCE. 537 


other countries, such as France, the 
law, on the contrary, compels division 
of inheritances; not only, in case of 
intestacy, sharing the property, both 
real and personal, equally among all 
the children, or (if there are no 
children) among all relatives in the 
same degree of propinquity ; but also 
not recognising any power of bequest, 
or recognising it over only a limited 
portion of the property, the remainder 
being subjected to compulsory equal 
division. 

Neither of these systems, I appre¬ 
hend, was introduced, or is perhaps 
maintained, in the countries where it 
exists, from any general considerations 
of justice, or any foresight of economi¬ 
cal consequences, but chiefly from poli¬ 
tical motives ; in the one case to keep 
up large hereditary fortunes, and a 
landed aristocracy; in the other, to 
break these down, and prevent their 
resurrection. The first object, as an 
aim of national policy, I conceive to be 
eminently undesirable : with regard to 
the second, I have pointed out what 
seems to me a better mode of attaining 
it. The merit, or demerit, however, of 
either purpose, belongs to the general 
science of politics, not to the limited 
department of that science which is 
here treated of. Each of the two 
systems is a real and efficient instru¬ 
ment for the purpose intended by it; 
but each, as it appears to me, achieves 
that purpose at the cost of much mis¬ 
chief. 

§ 2. There are two arguments of 
an economical ■ character, which are 
urged in favour of primogeniture. One 
is, the stimulus applied to the industry 
and ambition of younger children, by 
leaving them to be the architects of 
their own fortunes. This argument 
was put by Dr. Johnson in a manner 
more forcible than complimentary to 
an hereditary aristocracy, when he said, 
by way of recommendation of primo¬ 
geniture, that it “ makes but one fool 
in a family.” It is curious that a de¬ 
fender of aristocratic institutions should 
be the person to assert that to inherit 
such a fortune as takes away any 
necessity for exertion, is generally fatal 


to activity and strength of mind: in 
the present state of education, how r - 
ever, the proposition, with some allow- 
ance for exaggeration, may be admitted 
to be true. But whatever force there 
is in the argument, counts in favour of 
limiting the eldest, as well as all the 
other children, to a mere provision, and 
dispensing with even the “ one fool” 
whom Dr. Johnson was willing t» 
tolerate. If unearned riches are so 
pernicious to the character, one doea 
not see why, in order to withhold the 
poison from the junior members of a 
family, there should be no way but to* 
unite all their separate potions, and 
administer them in the largest possible 
dose to one selected victim. It cannot 
be necessary to inflict this great evil on 
the eldest son, for want of knowing 
what else to do with a large fortune. 

Some writers, hov T ever, look upon 
the effect of primogeniture in stimulat¬ 
ing industry, as depending, not so much 
on the poverty of the younger children, 
as on the contrast between that poverty 
and the riches of the elder; thinking 
it indispensable to the activity and 
energy of the hive, that there should 
be a huge drone here and there, to im¬ 
press the working bees with a due sense 
of the advantages of honey. “ Their 
inferiority in point of wealth,” says 
Mr. M'Culloch, speaking of the younger 
children, “ and their desire to escape 
from this lower station, and to attain 
to the same level with their elder 
brothers, inspires them with an energy 
and vigour they could not otherwise 
feel. But the advantage of preserving 
large estates from being frittered down 
by a scheme of equal division, is not 
limited to its influence over the younger 
children of their owners. It raises 
universally the standard of competence, 
and gives new force to the springs 
which set industry in motion. The 
manner of living among the great land¬ 
lords is that in which every one is am¬ 
bitious of being able to indulge ; and 
their habits of expense, though some¬ 
times injurious to themselves, act as 
powerful incentives to the ingenuity 
and enterprise of the other classes, who 
never think their fortunes sufficiently 
ample, unless they will enable them to 




538 BOOK V. CHAPTER IX. § . 


emulate the splendour of the richest 
landlords; so that the custom of pri¬ 
mogeniture seems to render all classes 
more industrious, and to augment at 
the same time, the mass of wealth and 
the scale of enjoyment.” * 

The portion of truth, I can hardly 
say contained in these observations, 
but recalled by them, I apprehend to 
be, that a state of complete equality of 
fortunes would not be favourable to 
active exertion for the increase of 
wealth. Speaking of the mass, it is as 
true of wealth as of most other distinc¬ 
tions—of talent, knowledge, virtue— 
that those who already have, or think 
they have, as much of it as their neigh¬ 
bours, will seldom exert themselves to 
acquire more. But it is not therefore 
necessary that society should provide a 
set of persons with large fortunes, to 
fulfil the social duty of standing to be 
looked at, with envy and admiration, 
by the aspiring poor. The fortunes 
which people have acquired for them¬ 
selves, answer the purpose quite as 
well, indeed much better; since a 
person is more powerfully stimulated 
by the example of somebody who has 
earned a fortune, than by the mere 
•sight of somebody who possesses one ; 
and the former is necessarily an ex¬ 
ample of prudence and frugality as well 
as industry, while the latter much 
oftener sets an example of profuse ex¬ 
pense, which spreads, with pernicious 
effect, to the very class on whom the 
sight of riches is supposed to have so 
beneficial an influence, namely, those 
whose weakness of mind, and taste for 
ostentation, make “ the splendour of 
the richest landlords” attract them 
with the most potent spell. In Ame¬ 
rica there are few or no hereditary 
fortunes; yet industrial energy, and 
the ardour of accumulation, are not 
supposed to be particularly backward 
in that part of the world. When a 
country has once fairly entered into 
the industrial career, which is the 
principal occupation of the modern, as 

* Principles of Political Economy, ed. 
1813, p. 2(5-1. There is much more to the 
same effect in the more recent treatise by 
the same author. On the Succession to Pro- 
perty vacant by Death. 


war was that of the ancient and me¬ 
diaeval world, the desire of acquisition 
by industry needs no factitious stimu¬ 
lus : the advantages naturally inherent 
in riches, and the character they as¬ 
sume of a test by which talent and 
success in life are habitually measured, 
are an ample security for their being 
pursued with sufficient intensity and 
zeal. As to the deeper consideration, 
that the diffusion of wealth, and not its 
concentration, is desirable, and that 
the more wholesome state of society is 
not that in which immense fortunes 
are possessed by a few and coveted by 
all, but that in which the greatest 
possible numbers possess and are con¬ 
tented with a moderate competency, 
which all may hope to acquire ; I refer 
to it in this place, only to show, how 
widely separated, on social questions, 
is the entire mode of thought of the 
defenders of primogeniture, from that 
which is partially promulgated in the 
present treatise. 

The other economical argument in 
favour of primogeniture, has special 
reference to landed property. It is 
contended, that the habit of dividing 
inheritances equally, or with an ap¬ 
proach to equality, among children, 
promotes the subdivision of land into 
portions too small to admit of being 
cultivated in an advantageous manner. 
This argument, eternally reproduced, 
has again and again been refuted by 
English and Continental writers. It 
proceeds on a supposition entirely at 
variance with that on which all the 
theorems of political economy are 
grounded. It assumes that mankind 
in general will habitually act in a 
manner opposed to their immediate 
and obvious pecuniary interest. For 
the division of the inheritance does not 
necessarily imply division of the land; 
which may be held in common, as is 
not unfrequently the case in France 
and Belgium ; or may become the pro¬ 
perty of one of the coheirs, being 
charged with the shares of the others 
by way of mortgage; or they may sell 
it outright, and divide the proceeds. 
When the division of the land would 
diminish its productive power, it is the 
direct interest of the heirs to adopt 



INHERITANCE. 


some one of these arrangements. Sup¬ 
posing, however, what the argument 
assumes, that either from legal difficul¬ 
ties or from their own stupidity and 
barbarism, they would not, if left to 
themselves, obey the dictates of this 
obvious interest, but would insist upon 
cutting up the land bodily into equal 
parcels, with the effect of impoverish¬ 
ing themselves ; this would be an ob¬ 
jection to a law such as exists in 
France, of compulsory division, but can 
be no reason why testators should be 
discouraged from exercising the right 
of bequest in general conformity to the 
rule of equality, since it would always 
be in their power to provide that the 
division of the inheritance should take 
place without dividing the land itself. 
That the attempts of the advocates of 
primogeniture to make out a case by 
facts against the custom of equal divi¬ 
sion, are equally abortive, has been 
shown in a former place. In all coun¬ 
tries, or parts of countries, in which 
the division of inheritances is accom¬ 
panied by small holdings, it is because 
small holdings are the general system 
of the country, even on the estates of 
the great proprietors. 

Unless a strong case of social utility 
can be made out for primogeniture, it 
stands sufficiently condemned by the 
general principles of justice ; being a 
broad distinction in the treatment of 
one person and of another, grounded 
solely on an accident. There is no 
need, therefore, to make out any case 
of economical evil against primogeni¬ 
ture. Such a case, however, and a 
very strong one, may be made. It is 
a natural effect of primogeniture to 
make the landlords a needy class. 
The object of the institution, or custom, 
is to keep the land together in large 
masses, and this it commonly accom¬ 
plishes ; but the legal proprietor of a 
large domain is not necessarily the 
bona fide owner of the whole income 
which it yields. It is usually charged, 
in each generation, with provisions for 
the other children. It is often charged 
still more heavily by the imprudent 
expenditure of the proprietor. Great 
landowners are generally improvident 
in their expenses ; they live up to their 


539 

incomes when at the highest, and if 
any change of circumstances diminishes 
their resources, some time elapses be¬ 
fore they make up their minds to re¬ 
trench. Spendthrifts in other classes 
are ruined, and disappear from society; 
but the spendthrift landlord usually 
holds fast to his land, even when he 
has become a mere receiver of its rents 
for the benefit of creditors. The same 
desire to keep up the “ splendour” of 
the family, which gives rise to the 
custom of primogeniture, indisposes 
the owner to sell a part in order to set 
free the remainder; their apparent are 
therefore habitually greater than their 
real means, and they are under a per¬ 
petual temptation to proportion their 
expenditure to the former rather than 
to the latter. From such causes as 
these, in almost all countries of great 
landowners, the majority of landed 
estates are deeply mortgaged; and 
instead of having capital to spare for 
improvements, it requires all the in¬ 
creased value of land, caused by the 
rapid increase of the wealth and popu¬ 
lation of the country, to preserve the 
class from being impoverished. 

§ 3. To avert this impoverishment, 
recourse was had to the contrivance of 
entails, whereby the order of succession 
was irrevocably fixed, and each holder, 
having only a life interest, was unable 
to burthen his successor. The land 
thus passing, free from debt, into the 
possession of the heir, the family could 
not be ruined by the improvidence of 
its existing representative. The eco¬ 
nomical evils arising from this dispo¬ 
sition of property were partly of the 
same kind, partly different, but on the 
whole greater, than those arising from 
primogeniture alone. The possessor 
could not now ruin his successors, but 
he could still ruin himself: he was not 
at all more likely than in the former 
case to have the means necessary for 
improving the property: while, even if 
he had, he was still less likely to em¬ 
ploy them for that purpose, when the 
benefit was to accrue to a person whom 
the entail made independent of him, 
while he had probably younger chil¬ 
dren to provide for, in whose favour he 




540 BOOK Y. CHAPTER IX. § 4. 


could not now charge the estate. 
While thus disabled from being him¬ 
self an improver, neither could he sell 
the estate to somebody who would ; 
since entail precludes alienation. In 
general he has even been unable to 
grant leases beyond the term of his own 
life ; “ for,” says Blackstone, “if such 
leases had been valid, then, under cover 
of long leases, the issue might have 
been virtually disinherited;” and it 
has been necessary in Great Britain to 
relax, by statute, the rigour of entails, 
in order to allow either of long leases, 
or of the execution of improvements at 
the expense of the estate. It may be 
added that the heir of entail, being 
assured of succeeding to the family 
property, however undeserving of it, 
and being aware of this from his ear¬ 
liest years, has much more than the 
ordinary chances of growing up idle, 
dissipated, and profligate. 

In England the power of entail is 
more limited bylaw, than in Scotland 
and in most other countries where it 
exists. A landowner can settle his 
property upon any number of persons 
successively who are living at the time, 
and upon one unborn person, on whose 
attaining the age of twenty-one, the 
entail expires, and the land becomes his 
absolute property. An estate may in 
this manner be transmitted through a 
son, or a son and grandson, living when 
the deed is executed, to an unborn 
child of that grandson. It has been 
maintained that this power of entail is 
not sufficiently extensive to do any 
mischief: in truth, however, it is much 
larger than it seems. Entails very 
rarely expire ; the first heir of entail, 
when of age, joins with the existing 
possessor in resettling the estate, so 
as to prolong the entail for a further 
term. Large properties therefore, are 
rarely free for any considerable period, 
from the restraints of a strict settle¬ 
ment; though the mischief is in one 
respect mitigated, since in the renewal 
of the settlement for one more genera¬ 
tion, the estate is usually charged with 
a provision for younger children. 

In an economical point of view, the 
best system of landed property is that 
in which land is most completely an 


object of commerce; passing readily 
from hand to hand when a buyer can 
be found to whom it is worth while to 
offer a greater sum for the land, than 
the value of the income drawn from it 
by its existing possessor. This of 
course is not meant of ornamental pro¬ 
perty, which is a source of expense, not 
profit; but only of land employed for 
industrial uses, and held for the sake of 
the income which it affords. What¬ 
ever facilitates the sale of land, tends 
to make it a more productive instru¬ 
ment for the community at large * 
whatever prevents or restricts its sale, 
subtracts from its usefulness. Kow, 
not only has entail this effect, but pri¬ 
mogeniture also. The desire to keep 
land together in large masses, from 
other motives than that of promoting 
its productiveness, often prevents 
changes and alienations which would 
increase its efficiency as an instru¬ 
ment. 

§ 4. On the other hand, a law 
which, like the French, restricts the 
power of bequest to a narrow compass, 
and compels the equal division of the 
whole or the greater part of the pro¬ 
perty among the children, seems to 
me, though on different grounds, also 
very seriously objectionable. The only 
reason for recognising in the children 
any claim at all to more than a pro¬ 
vision, sufficient to launch them in life, 
and enable them to find a livelihood, 
is grounded on the expressed or pre¬ 
sumed wish of the parent; whose claim 
to dispose of what is actually his own, 
cannot be set aside by any pretensions 
of others to receive what is not theirs. 
To control the rightful owner’s liberty 
of gift, by creating in the children a 
legal right superior to it, is to post¬ 
pone a real claim to an imaginary one. 
To this great and paramount objection 
to the law, numerous secondary ones 
may be added. Desirable as it is that 
the parent should treat the children 
with impartiality, and not make an 
eldest son or a favourite, impartial 
division is not always synonymous 
with equal division. Some of the chil¬ 
dren may, without fault of their own, 
be less capable than others of pro- 



PARTNERSHIP. 


Tiding for themselves: some may, by 
other means than their own exertions, 
be already provided for: and impar¬ 
tiality may therefore require that the 
rule observed should not be one of 
■equality, but of compensation. Even 
when equality is the object, there are 
sometimes better means of attaining it, 
than the inflexible rules by which law 
must necessarily proceed. If one of 
the coheirs, being of a quarrelsome or 
litigious disposition, stands upon his 
utmost rights, the law cannot make 
equitable adjustments ; it cannot ap¬ 
portion the property as seems best for 
the collective interest of all concerned ; 
if there are several parcels of land, 
and the heirs cannot agree about 
their value, the law cannot give a 
parcel to each, but every separate 
parcel must be either put up to sale or 
divided: if there is a residence, or a 
park or pleasure-ground, which would 
be destroyed, as such, by subdivision, 
it must be sold, perhaps at a great sa¬ 
crifice both of money and of feeling. 
But what the law could uot do, the 
parent could. By means of the liberty 
of bequest, all these points might be 
determined according to reason and the 
general interest of the persons con¬ 
cerned ; and the spirit of the principle 
of equal division might be the better ob¬ 
served, because the testator was eman¬ 
cipated from its letter. Finally, it 
would not then be necessary, as under 
the compulsory system it is, that the 
law should interfere authoritatively in 
the concerns of individuals, not only on 
the occurrence of a death, but through¬ 
out life, in order to guard against the 
attempts of parents to frustrate the 
legal claims of their heirs, under colour 
of gifts and other alienations inter vivos. 

in conclusion; all owners of pro¬ 
perty should, I conceive, have power 
to dispose by will of every part of it, 
but not to determine the person who 
should succeed to it after the death of 
all who were living when the will was 
made. Under what restrictions it 
should be allowable to bequeath pro¬ 
perty to one person for life, with re¬ 
mainder to another person already in 
existence, is a question belonging to 
general legislation, not to political 


Ml 

economy. Such settlements would be 
no greater hindrance to alienation than 
any case of joint ownership, since the 
consent of persons actually in existence 
is all that would be necessary for any 
new arrangement respecting the pro¬ 
perty. 

§ 5. From the subject of Inherit¬ 
ance I now pass to that of Contracts, 
and among these, to the important 
subject of the Laws of Partnership. 
How much of good or evil depends 
upon these laws, and how important it 
is that they should be the best pos¬ 
sible, is evident to all who recognise 
in the extension of the co-operative 
principle in the larger sense of the 
term, the great economical necessity 
of modern industry. The progress of 
the productive arts requiring that 
many sorts of industrial occupation 
should be carried on by larger and 
larger capitals, the productive power of 
industry must suffer by whatever im¬ 
pedes the formation of large capitals 
through the aggregation of smaller 
ones. Capitals of the requisite magni¬ 
tude, belonging to single owners, do 
not, in most countries, exist in the 
needful abundance, and would be still 
less numerous if the laws favoured the 
diffusion instead of the concentration 
of property : while it is most unde¬ 
sirable that all those improved pro¬ 
cesses, and those means of efficiency 
and economy in production, which de¬ 
pend on the possession of large funds, 
should be monopolies in the hands of a 
few rich individuals, through the diffi¬ 
culties experienced by persons of mo¬ 
derate or small means in associating 
their capital. Finally, I must repeat 
my conviction, that the industrial eco¬ 
nomy which divides society absolutely 
into two portions, the payers of wages 
and the receivers of them, the first 
counted by thousands and the last by 
millions, is neither fit for, nor capable 
of, indefinite duration: and the possi¬ 
bility of changing this system for one 
of combination without dependence, and 
unity of interest instead of organized 
hostility, depends altogether upon the 
future developments of the Partnership 
principle. 





542 BOOK Y. CHAPTER IX. § G. 


Yet there is scarcely any country 
■whose laws do not throw great, and in 
most cases, intentional obstacles in the 
way of the formation of any numerous 
partnership. In England it is already 
a serious discouragement, that differ¬ 
ences among partners are, practically 
speaking, only capable of adjudication 
by the Court of Chancery : which is 
often worse than placing such questions 
out of the pale of all law ; since any 
one of the disputant parties, who is 
either dishonest orlitigious, can involve 
the others at his pleasure in the ex¬ 
pense, trouble, and anxiety, which are 
the unavoidable accompaniments of a 
Chancery suit, without their having 
the power of freeing themselves from 
the infliction even by breaking up the 
association.* Besides this, it required, 
until lately, a separate act of the legis¬ 
lature before any joint-stOck association 
could legally constitute itself, and be 
empowered to act as one body. By a 
statute passed a few years ago, this 
necessity is done away ; but the statute 
in question is described by competent 
authorities as a “ mass of confusion,” 
of which they say that there “never was 
such an infliction” on persons entering 

* Mr. Cecil Fane, tlie Commissioner of 
the Bankruptcy Court, in his evidence before 
the Committee on the Law of Partnership, 
says: “ I remember a short time ago reading 
a written statement by two eminent solici¬ 
tors, who said that they had known many 
partnership accounts go into Chancery, but 
that they never knew one come out. . . . 
Yery few of the persons who would be dis¬ 
posed to engage in partnerships of this kind” 
(co-operative associations of working men) 
“ have any idea of the truth, namely, that 
the decision of questions arising amongst 
partners is realty impracticable. 

“ Do they not know that one partner may 
rob the other without any possibility of his 
obtaining redress ? — The fact is so ; but 
whether they know it or not I cannot under¬ 
take to say.” 

This flagrant injustice is, in Mr. Fane ’3 
opinion, wholly attributable to the defects of 
the tribunal. “ My opinion is, that if there 
is one thing more easy than another, it is the 
settlement of partnership questions, and for 
the simple reason, that everything which is 
done in a partnership is entered in the 
books; the evidence therefore is at hand; if 
therefore a rational mode of proceeding were 
once adopted, the difficulty would altogether 
vanish.”—Minutes of Evidence annexed to 
the Report of the Select Committee on the 
Law ot Partnership (1851), pp. 85-7. 


into partnership.*}* When a number of 
persons, whether few or many, freely 
desire to unite their funds for a com¬ 
mon undertaking, not asking any pecu¬ 
liar privilege, nor the power to dispos¬ 
sess any one of property, the law cfln 
have no good reason for throwing dif¬ 
ficulties in the way of the realization 
of the project. On compliance with a 
few simple conditions of publicity, any 
body of persons ought to have the 
power of constituting themselves into 
a joint-stock company, or societe en 
nom collectif, without asking leave 
either of any public officer or of parlia¬ 
ment. As an association of many 
partners must practically be under the 
management of a few, every facility 
ought to be afforded to the body for 
exercising the necessary control and 
check over those few, whether they be 
themselves members of the association, 
or merely its hired servants : and in 
this point the English system is still at 
a lamentable distance from the standard 
of perfection. 

§ 6. Whatever facilities, however, 
English law might give to associations 
formed on the principles of ordinary 
partnership, there is one sort of joint- 
stock association which until the year 
1855 it absolutely disallowed, and 
which could only be called into exist¬ 
ence by a special act either of the legis¬ 
lature or of the crown. I mean, asso¬ 
ciations with limited liability. 

Associations with limited liability 
are of two kinds : in one, the liability 
of all the partners is limited, in the 
other that of some of them only. The 
first is the Anonymous Society of the 
French law, which in England had 
until lately no other name than that of 
“ chartered company:” meaning there¬ 
by a joint-stock company whose share¬ 
holders, by a charter from the crown or 
a special enactment of the legislature, 
stood exempted from any liability for 
the debts of the concern, beyond the 
amount of their subscriptions. The 
other species of limited partnership is 
that known to the French law under 
the name of commandite; of this, which 


t Report, ut supra, p. 167. 






PARTNERSHIP. 


in England is still unrecognised and 
illegal, I shall speak presently. 

If a number of persons choose to as¬ 
sociate for carrying on any operation 
of commerce or industry, agreeing 
among themselves and announcing to 
those with whom they deal that the 
members of the association do not un¬ 
dertake to be responsible beyond the 
amount of the subscribed capital; is 
there any reason that the law should 
raise objections to this proceeding, and 
should impose on them the unlimited 
responsibility which they disclaim? 
For whose sake? Not for that of the 
partners themselves; for it is they 
whom the limitation of responsibility 
benefits and protects. It must there¬ 
fore be for the sake of third parties; 
namely, those who may have transac¬ 
tions with the association, and to whom 
it may run in debt beyond what the 
subscribed capital suffices to pay. But 
nobody is obliged to deal with the as¬ 
sociation ; still less is any one obliged 
to give it unlimited credit. The class 
of persons with whom such associa¬ 
tions have dealings are in general per¬ 
fectly capable of taking care of them¬ 
selves, and there seems no reason that 
the law should be more careful of their 
interest than they will themselves be ; 
provided no false representation is held 
out, and they are aware from the first 
what they have to trust to. The law 
is warranted in requiring from all 
joint-stock associations with limited 
responsibility, not only that the amount 
of capital on which they profess to 
carry on business should either be ac¬ 
tually paid up or security given for it 
(if, indeed, with complete publicity, 
such a requirement would bo neces¬ 
sary) but also that such accounts should 
be kept, accessible to individuals, and 
if needful, published to the world, as 
shall render it possible to ascertain at 
any time the existing state of the 
company’s affairs, and to learn whether 
the capital which is the sole security 
for the engagements into which they 
-enter, still subsist unimpaired: the 
fidelity of such accounts being guarded 
by sufficient penalties. When the law 
has thus afforded to individuals all 
practicable means of knowing the cir¬ 


543 

cumstances which ought to enter into 
their prudential calculations in dealing 
with the company, there seems no 
more need for interfering with indivi¬ 
dual judgment in this sort of transac¬ 
tions, than in any other part of the 
private business of life. 

The reason usually urged for such 
interference is, that the managers of 
an association with limited responsi¬ 
bility, not risking their whole fortunes 
in the event of loss, while in case of 
gain they might profit largely, are not 
sufficiently interested in exercising 
due circumspection, and are under the 
temptation of exposing the funds of 
the association to improper hazards. 
It is, however, well ascertained that 
associations with unlimited responsi¬ 
bility, if they have rich shareholders, 
can obtain, even when known to be 
reckless in their transactions, improper 
credit to an extent far exceeding what 
would be given to companies equally 
ill-conducted whose creditors had only 
the subscribed capital to rely on.* To 
whichever side the balance of evil in¬ 
clines, it is a consideration of more 
importance to the shareholders them¬ 
selves than to third parties; since,, 
with proper securities for publicity, 
the capital of an association with 
limited liability could not be engaged 
in hazards beyond those ordinarily in¬ 
cident to the business it carries on, 
without the fact’s being known, and 
becoming *the subject of comments by 
which the credit of the body would be 
likely to be affected in quite as great 
a degree as the circumstances would 
justify. If, under securities for pub¬ 
licity, it were found in practice that 
companies, formed on the principle of 
unlimited responsibility, were more 
skilfully and more cautiously managed, 
companies with limited liability would 
be unable to maintain an equal compe¬ 
tition with them ; and would therefore 
rarely be formed, unless when such 
limitation was the only condition on 
which the necessary amount of capital 
could be raised: and in that case it 
would be very unreasonable to say that 
their formation ought to be prevented. 

* See the Report already referredtc, 
pp. 145-158. 




544 BOOK V. CHAPTER IX. § 6. 


It may further he remarked, that 
although, with equality of capital, a 
company of limited liability offers a 
somewhat less security to those who 
deal with it, than one in which every 
shareholder is responsible with his 
whole fortune, yet even the weaker of 
•these two securities is in some respects 
stronger than that which an individual 
capitalist can afford. In the case of 
•an individual, there is such security as 
can be founded on his unlimited lia¬ 
bility, but not that derived from pub¬ 
licity of transactions, or from a known 
and large amount of paid-up capital. 
This topic is well treated in an able 
paper by M. Coquelin, published in 
the Revue des Deux Mondes for July 
1843.* 

“ While third parties who trade 
with individuals,” says this writer, 
“ scarcely ever know, except by ap¬ 
proximation, and even that most vague 
and uncertain, what is the amount of 
capital responsible for the performance 
of contracts made with them, those 
who trade with an anonymous society 
can obtain full information if they seek 
it, and perform their operations with a 
feeling of confidence that cannot exist 
in the other case. Again, nothing is 
easier than for an individual trader to 
conceal the extent of his engagements, 
as no one can know it certainly but 
himself. Even his confidential clerk 
may be ignorant of it, as the loans he 
finds himself compelled to make may 
not all be of a character to require 
that they be entered in his day-book. 
It is a secret confined to himself; one 
which transpires rarely, and always 
slowly; one which is unveiled only 
when the catastrophe has occurred. 
On the contrary, the anonymous so¬ 
ciety neither can nor ought to borrow, 
without the fact becoming known to 
all the world—directors, clerks, share¬ 
holders, and the public. Its operations 
partake in some respects, of the nature 
•of those of governments. The light of 
day penetrates in every direction, and 
there can be no secrets from those who 

* The quotation is from a translation pub¬ 
lished by Mr. H. C. Carey, in an American 
periodical, Hunt's Merchant's Magazine, for 
May and J une 1845. 


seek for information. Thus all is fixed, 
recorded, known, of the capital and 
debts in the case of the anonymous 
society, while all is uncertain and un¬ 
known in the case of the individual 
trader. Which of the two, we would 
ask the reader, presents the most 
favourable aspect, or the surest gua¬ 
rantee, to the view of those who trade 
with them ? 

“Again, availing himself of the 
obscurity in which his affairs are 
shrouded, and which he desires to in¬ 
crease, the private trader is enabled, 
so long as his business appears pros¬ 
perous, to produce impressions in re¬ 
gard to his means far exceeding the 
reality, and thus to establish a credit 
not justified by those means. When 
losses occur, and he sees himself 
threatened with bankruptcy, the world 
is still ignorant of his condition, and 
he finds himself enabled to contract 
debts far beyond the possibility of 
payment. The fatal day arrives, and 
the creditors find a debt much greater 
than had been anticipated, while the 
means of payment are as much less. 
Even this is not all. The same ob¬ 
scurity which has served him so well 
thus far, when desiring to magnify his 
capital and increase his credit, now 
affords him the opportunity of placing 
a part of that capital beyond the reach 
of his creditors. It becomes dimi¬ 
nished, if not annihilated. It hides 
itself, and not even legal remedies, nor 
the activity of creditors, can bring it 
forth from the dark corners in which 

it is placed.Our readers can 

readily determine for themselves if 
practices of this kind are equally easy 
in the case of the anonymous society. 
We do not doubt that such things are 
possible, but we think tjiat they will 
agree with us that from its nature, its 
organization, and the necessary pub¬ 
licity that attends all its actions, the 
liability to such occurrences is very 
greatly diminished.” 

The laws of most countries, England 
included, have erred in a twofold man¬ 
ner with regard to joint-stock com¬ 
panies. While they have been most 
unreasonably jealous of allowing such 
associations to exist, especially with 




PARTNERSHIP. 


limited responsibility, they have gene¬ 
rally neglected the enforcement of 
publicity; the best security to the 
public against any danger which might 
arise from this description of partner¬ 
ships ; and a security quite as much 
required in the case of those associa¬ 
tions of the kind in question, which, 
by an exception from their general 
practice, they suffered to exist. Even 
in the instance of the Bank of Eng¬ 
land, which holds a monopoly from the 
legislature, and has had partial control 
over a matter of so much public inte¬ 
rest as the state of the circulating 
medium, it is only within these few 
years that any publicity has been en¬ 
forced ; and the publicity was at first 
of an extremely incomplete character, 
though now, for most practical pur¬ 
poses, probably at length sufficient. 

§ 7. The other kind of limited part¬ 
nership which demands our attention, 
is that in which the managing partner 
or partners are responsible with their 
whole fortunes for the engagements of 
the concern, but have others associated 
with them who contribute only definite 
sums, and are not liable for anything 
beyond, though they participate in the 
profits according to any rule which 
may be agreed on. This is called 
partnership in commandite: and the 
partners with limited liability (to 
whom, by the French law, all inter¬ 
ference in the management of the con¬ 
cern is interdicted) are known by the 
name commanditaires. Such partner¬ 
ships are not allowed by English law : 
in all private partnerships, whoever 
shares in the profits is liable for the 
debts, to as plenary an extent as the 
managing partner. 

For such prohibition no satisfactory 
defence has ever, so far as I am aware, 
been made. Even the insufficient 
reason given against limiting the re¬ 
sponsibility of shareholders in a joint- 
stock company, does not apply here; 
there being no diminution of the 
motives to circumspect management, 
since all who take any part in the 
direction of the concern are liable with 
their whole fortunes. To third parties, 
again, the security is improved by the 
P.E. 


545 

existence of commandite ; since the 
amount subscribed by commanditaires 
is all of it available to creditors, the 
commanditaires losing their whole in¬ 
vestment before any creditor can lose 
anything ; while, if instead of becoming 
partners to that amount, they had lent 
the sum at an interest equal to the 
profit they derived from it, they would 
have shared with the other creditors 
in the residue of the estate, diminish¬ 
ing pro rata the dividend obtained by 
all. While the practice of commandite 
thus conduces to the interest of cre¬ 
ditors, it is often highly desirable for 
the contracting parties themselves. 
The managers are enabled to obtain 
the aid of a much greater amount of 
capital than they could borrow on 
their own security; and persons are 
induced to aid useful undertakings, by 
embarking limited portions of capital 
in them, when they would not, and 
often could not prudently, have risked 
their whole fortunes on the chances of 
the enterprise. 

It may perhaps be thought that 
where due facilities are afforded to 
joint-stock companies, commandite 
partnerships are not required. But 
there are classes of cases to which the 
commandite principle must always 
be better adapted than the joint- 
stock principle. “ Suppose,” says M. 
Coquelin, “ an inventor seeking for a 
capital to carry his invention into 
practice. To obtain the aid of capi¬ 
talists, he must offer them a share of 
the anticipated benefit; they must as¬ 
sociate themselves with him in the 
chances of its success. In such a case, 
which of the forms would he select? 
Not a common partnership, certainly 
for various reasons, and especially tho 
extreme difficulty of finding a partner 
with capital, willing to risk his whole 
fortune on the success of the inven¬ 
tion.* “ Neither would he select tho 

* “ There has been a great deal of com¬ 
miseration professed,” says Mr. Duncan, 
solicitor, “ towards the poor inventor; he 
has been oppressed by the high cost of 
patents; but his chief oppression has been 
the partnership law, which prevents his 
getting any one to help him to develop his 
invention. He is a poor man, and therefore 
cannot give security to a creditor; no one 
will lend, him money; the rate of interest 

N N 




BOOK V. CHAPTER IX. § 7. 


546 

Anonymous Society,” or any other form 
of joint-stock company, “ in which he 
might be superseded as manager. He 
would stand, in such an association, on 
no better footing than any other share¬ 
holder, and he might be lost in the 
crowd; whereas, the association ex¬ 
isting, as it were, by and for him, the 
management would appear to belong 
to him as a matter of right. Cases 
occur in which a merchant or a manu¬ 
facturer, without being precisely an 
inventor, has undeniable claims to the 
management of an undertaking, from 
the possession of qualities peculiarly 
calculated to promote its success. So 
great, indeed,” continues M. Coquelin, 
"is the necessity, in many cases, for 
the limited partnership, that it is diffi¬ 
cult to conceive how we could dis¬ 
pense with or replace it:” and in re¬ 
ference to his own country he is pro¬ 
bably in the right. 

Where there is so great a readiness 
as in England, on the part of the 
public, to form joint-stock associations, 
even without the encouragement of a 
limitation of responsibility; comman¬ 
dite partnership, though its prohibition 
is in principle quite indefensible, can¬ 
not be deemed to be, in a merely eco- 

offered, however high it may be, is not an 
attraction. But if by the alteration of the 
law he could allow capitalists to take an 
interest with him and share the profits, while 
the risk should be confined to the capital 
they embarked, there is very little doubt at 
all that he would frequently get assistance 
from capitalists; whereas at the present 
moment, with the law as it stands, he is com¬ 
pletely destroyed, and his invention is useless 
to him; he struggles month after month; he 
applies again and again to the capitalist 
without avail. I know it practically in two 
or three cases of patented inventions; espe¬ 
cially one where parties with capital were 
desirous of entering into an undertaking of 
reat moment in Liverpool, but five or six 
ifl'erent gentlemen were det erred from doing 
so, all feeling the strongest objection to what 
each one called the cursed partnership law." 
—Report, p. 155. 

Mr. Fane says, “ In the course of my pro¬ 
fessional life, as a Commissioner of the Court 
of Bankruptcy, I have learned that the most 
unfortunate man in the world is an inventor. 
The difficulty which an inventor finds in 
getting at capital, involves him in all sorts 
of embarrassments, and he ultimately is for 
the most part a ruined man, and somebody 
else gets possession of his invention.”—lb. 
p. 82. 


nomical point of view, of the imperative 
necessity which M. Coquelin ascribes 
to it. Yet the inconveniences are not 
small, which arise indirectly from those 
provisions of the law by which every 
one who shares in the profits of a con¬ 
cern is subject to the full liabilities of 
an unlimited partnership. It is impos¬ 
sible to say bow many or what useful 
modes of combination are rendered 
impracticable by this state of the law. 
It is sufficient for its condemnation 
that, unless in some way relaxed, it is 
inconsistent with the payment of wages 
in part by a percentage on profits ; in 
other words, the association of the 
operatives as virtual partners with the 
capitalist.* 

It is, above all, with reference to the 
improvement and elevation of the work¬ 
ing classes, that complete freedom in 
the conditions of partnership is indis¬ 
pensable. Combinations such as the 
associations of workpeople, described 
in a former chapter, are the most 
powerful means of effecting the social 
emancipation of the labourers through 
their own moral qualities. Nor is the 
liberty of association important solely 
for its examples of success, but fully 
as much so for the sake of attempts 
which would not succeed ; hut by their 
failure would give instruction more im¬ 
pressive than can be afforded by any¬ 
thing short of actual experience. Every 
theory of social improvement, the worth 
of which is capable of being brought to 
an experimental test, should be per¬ 
mitted, and even encouraged, to sub¬ 
mit itself to that test. From such 
experiments the active portion of the 
working classes would derive lessons 
which they would be slow to learn from 
the teaching of persons supposed to 
have interests and prejudices adverse 
to their good ; would obtain the means 
of correcting, at no cost to society, what¬ 
ever is now erroneous in their notions 
of the means of establishing their in¬ 
dependence ; and of discovering the con- 
I ditions, moral, intellectual, and indus- 

* It is considered possible to effect this 
through the Limited Liability Act, by 
erecting the capitalist and his workpeople 
into a Limited Company: as proposed "by 
Messrs. Briggs (supra, p. 465). 





PARTNERSHIP. * 547 


-trial, which are indispensably necessary 
for effecting without injustice, or for 
effecting at all, the social regeneration 
they aspire to.* 

The French law of partnership is 
superior to the English in permitting 
commandite; and superior, in having 
no such unmanageable instrument as 
the Court of Chancery, all cases arising 
from commercial transactions being 
adjudicated in a comparatively cheap 
and expeditious manner by a tribunal 
of merchants. In other respects the 
French system is far worse than the 
English. A joint-stock company with 
limited responsibility cannot be formed 
without the express authorization of 
the department of government called 
the Council of State, a body of admi¬ 
nistrators, generally entire strangers to 
industrial transactions, who have no 
interest in promoting enterprises, and 
are apt to think that the purpose of 
their institution is to restrain them; 
whose consent cannot in any case be 
obtained without an amount of time 
and labour which is a very serious 
hindrance to the commencement of an 
enterprise, while the extreme uncer¬ 
tainty of obtaining that consent at all 
is a great discouragement to capitalists 
who would be willing to subscribe. In 
regard to joint-stock companies with¬ 
out limitation of responsibility, which, 
in England exist in such numbers and 
are formed with such facility, these 
associations cannot, in France, exist at 
all; for, in cases of unlimited partner¬ 
ship, the French law does not permit 
the division of the capital into trans¬ 
ferable shares. 

The best existing laws of partner¬ 
ship appear to be those of the New 

* By an act of tlie year 1852, called the 
Industrial and Provident Societies Act, for 
which the nation is indebted to the public- 
spirited exertions of Mr. Slaney, industrial 
associations of workhig people are admitted 
to the statutory privileges of Friendly So¬ 
cieties. This not only exempts them from 
the formalities applicable to joint-stock com¬ 
panies, but provides for the settlement of 
disputes among the partners wit hout recourse 
to the Court of Chancery. There are still 
some defects in the provisions of this Act, 
which hamper the proceedings of the 
Societies in several respects ; as is pointed 
lea in the Almanack of the Rochdale Equit- 
obut Pioneers for 1861, 


England States. According to Mr. 
Carey,f “ nowhere is association so 
li,ttle trammelled by regulations as in 
New England; the consequence of 
which is, that it is carried to a greater 
extent there, and particularly in Massa¬ 
chusetts and Rhode Island, than in any 
other part of the world. In these 
states, the soil is covered with com- 
pagnies anonymes —chartered compa¬ 
nies — for almost every conceivable 
purpose. Every town is a corporation 
for the management of its roads, bridges, 
and schools; which are, therefore, under 
the direct control of those who pay 
for them, and are consequently well 
managed. Academies and churches, 
lyceums and libraries, saving-fund so¬ 
cieties, and trust companies, exist in 
numbers proportioned to the wants of 
the people, and all are corporations. 
Every district has its local bank, of a 
size to suit its wants, the stock of which 
is owned by the small capitalists of 
the neighbourhood, and managed by 
themselves; the consequence of which 
is, that in no part of the world is the 
system of banking so perfect—so little 
liable to vibration in the amount of 
loans—the necessary effect of which is, 
that in none is the value of property 
so little affected by changes in the 
amount or value of the currency re¬ 
sulting from the movements of their 
own banking institutions. In the two 
states to which we have particularly 
referred, they are almost two hundred 
in number. Massachusetts, alone, 
offers to our view fifty-three insurance 
offices, of various forms, scattered 
through the state, and all incorporated. 
Factories are incorporated, and are 
owned in shares; and every one that 
has any part in the management of 
their concerns, from the purchase of 
the raw material to the sale of the 
manufactured article, is a part owner; 
while every one employed in them has 
a prospect of becoming one, by the use 
of prudence, exertion, and economy. 
Charitable associations exist in large 
numbers, and all are incorporated. 
Fishing vessels are owned in shares by 
those who navigate them; and the 

f In a note appended to his translation of 
M. Coquelin’s paper. 



BOOK V. CHAPTER IX. § 8. 


548 

sailors of a whaling ship depend in a 
great degree, if not altogether, upon 
the success of the voyage for their 
compensation. Every master of a ves¬ 
sel trading in the Southern Ocean is a 
part owner, and the interest he pos¬ 
sesses is a strong inducement to exer¬ 
tion and economy, by aid of which the 
people of New England are rapidly 
driving out the competition of other 
nations for the trade of that part of 
the world. Wherever settled, they ex¬ 
hibit the same tendency to combination 
of action. In New York they are the 
chief owners of the lines of packet 
ships, which arc divided into shares, 
owned by the shipbuilders, the mer¬ 
chants, the master, and the mates; 
which last generally acquire the means 
of becoming themselves masters, and 
to this is due their great success. The 
system is the most perfectly democratic 
of any in the world. It affords to 
every labourer, every sailor, every ope¬ 
rative, male or female, the prospect of 
advancement; and its results are pre¬ 
cisely such as we should have reason 
to expect. In no part of the world are 
talent, industry, and prudence, so cer¬ 
tain to be largely rewarded.” 

The cases of insolvency and fraud on 
the part of chartered companies in 
America, which have caused so much 
loss and so much scandal in Europe, 
did not occur in the part of the Union 
to which this extract refers, but in 
other States, in which the right of as¬ 
sociation is much more fettered by legal 
restrictions, and in which, accordingly, 
joint-stock associations are not compa¬ 
rable in number or variety to those of 
New England. Mr. Carey adds, “ A 
careful examination of the systems of 
the several states, can scarcely, avc 
think, fail to convince the reader of 
the advantage resulting from permit¬ 
ting men to determine among them¬ 
selves the terms upon which they will 
associate, and allowing the associations 
that may be formed to contract with 
the public as to the terms upon which 
they will trade together, whether of 
the limited or unlimited liability of the 
partners.” This principle has been 
adopted as the foundation of all recent 
English legislation on the subject. 


§ 8. I proceed to the subject of In¬ 
solvency Laws. 

Good laws on this subject are im¬ 
portant, first and principally, on the 
score of public morals; which are on 
no point more under the influence of 
the law, for good and evil, than in a 
matter belonging so pre-eminently to 
the province of law as the preservation 
of pecuniary integrity. But the sub¬ 
ject is also, in a merely economical 
point of view, of great importance. 
First, because the economical well¬ 
being of a people, and of mankind, de¬ 
pends in an especial manner upon their 
being able to trust each other’s en¬ 
gagements. Secondly, because one of 
the risks, or expenses, of industrial 
operations is the risk or expense of 
what aro commonly called bad debts, 
and every saving which can be effected, 
in this liability is a diminution of cost 
of production ; by dispensing with an 
item of outlay which in no way con¬ 
duces to the desired end, and which 
must be paid for either by the con¬ 
sumer of the commodity, or from the 
general profits of capital, according as 
the burthen is peculiar or general. 

The laws and practice of nations 
on this subject have almost always 
been in extremes. The ancient laws 
of most countries w r erc all severity to 
the debtor. They invested the creditor 
with a power of coercion, more or less 
tyrannical, which he might use against 
his insolvent debtor, either to extort 
the surrender of hidden property, or to 
obtain satisfaction of a vindictive cha¬ 
racter, which might console him for 
the non-payment of the debt. This 
arbitrary power has extended, in some 
countries, to making the insolvent 
debtor serve the creditor as his slave: 
in which plan there were at least some 
grains of common sense, since it might 
possibly be regarded as a scheme for 
making him work out the debt by his 
labour. In England, the coercion as¬ 
sumed the milder form of ordinary im¬ 
prisonment. The one and the other 
were the barbarous expedients of a 
rude age, repugnant to justice as well 
as to humanity. Unfortunately the 
reform of them, like that of the crimi¬ 
nal law generally, has been taken in 






INSOLVENCY. 549 


Land as an affair of humanity only, not 
of justice : and the modish humanity 
of the present time, which is essen¬ 
tially a thing of one idea, has in this 
as in other cases, gone into a violent 
reaction against the ancient severity, 
and might almost be supposed to see 
in the fact of having lost or squan¬ 
dered other people’s property, a pecu¬ 
liar title to indulgence. Everything 
in the law which attached disagreeable 
consequences to that fact, was gradu¬ 
ally relaxed, or entirely got rid of: 
until the demoralizing effects of this 
laxity became so evident as to deter¬ 
mine, by more recent legislation, a 
salutary though very insufficient move- 
anent in the reverse direction. 

The indulgence of the laws to those 
who have made themselves unable to 
pay their just debts, is usually de¬ 
fended, on the plea that the sole object 
of the law should be, in case of insol¬ 
vency, not to coerce the person of the 
debtor, but to get at his property, and 
distribute it fairly among the creditors. 
Assuming that this is and ought to be 
*the sole object, the mitigation of the 
law was in the first instance carried so 
far as to sacrifice that object. Impri¬ 
sonment at the discretion of a creditor 
was really a powerful engine for ex¬ 
tracting from the debtor any property 
which he had concealed or otherwise 
made away with: and it remains to be 
shown by experience whether, in de¬ 
priving creditors of this instrument, 
the law, even as last amended, has fur¬ 
nished them with a sufficient equiva¬ 
lent. But the doctrine, that the law 
has done all that ought to be expected 
from it, when it has put the creditors 
in possession of the property of an in¬ 
solvent, is in itself a totally inadmis¬ 
sible piece of spurious humanity. It 
is the business of law to prevent wrong¬ 
doing, and not simply to patch up the 
consequences of it when it has been 
committed. The law is bound to take 
care that insolvency shall not be a good 
pecuniary speculation ; that men shall 
not have the privilege of hazarding 
other people’s property without their 
knowledge or consent, taking the profits 
of the enterprise if it is successful, 
and if it fails, throwing the loss upon 


the rightful owners; and that they 
shall not find it answer to mako them¬ 
selves unable to pay their just debts, 
by spending the money of their credi¬ 
tors in personal indulgence. It is 
admitted that what is technically called 
fraudulent bankruptcy, the false pre¬ 
tence of inability to pay, is, when 
detected, properly subject to punish¬ 
ment. But does it follow that insol¬ 
vency is not the consequence of mis¬ 
conduct because the inability to pay 
may be real? If a man has been a 
spendthrift, or a gambler, with property 
on which his creditors had a prior 
claim, shall he pass scot-free because 
the mischief is consummated and the 
money gone? Is there any very mate- 
terial difference in point of morality 
between this conduct, and those other 
kinds of dishonesty which go by the 
names of fraud and embezzlement ? 

Such cases are not a minority, but 
a -large majority among insolvencies. 
The statistics of bankruptcy prove the 
fact. “ By far the greater part of all 
insolvencies arise from notorious mis¬ 
conduct ; the proceedings of the In¬ 
solvent Debtors Court and of the 
Bankruptcy Court will prove it. Ex¬ 
cessive and unjustifiable overtrading, 
or most absurd speculation in com¬ 
modities, merely because the poor spe¬ 
culator ‘ thought they would get up,’ 
but why he thought so he cannot tell; 
speculation in hops, in tea, m silk, in 
corn —things with which he is alto¬ 
gether unacquainted ; wild and absurd 
investments in foreign funds, or in 
joint-stocks; these are among the 
most innocent causes of bankruptcy.”* 
The experienced and intelligent writer 
from whom I quote, corroborates his 
assertion by the testimony of several 
of the official assignees of the Bank¬ 
ruptcy Court. One of them says, 
“ As far as I can collect from the 
books and documents furnished by the 
bankrupts, it seems to me that” in 
the whole number of cases which 
occurred during a given time in the 
court to which he was attached, 
“fourteen have been ruined by spe- 

* From a volume published in 18-15, en¬ 
titled Credit the Life of Commerce, by Mr. 
J. II. Elliott. 




550 


BOOK Y. CHAPTER IX. § 8. 


culations in things with which they 
were unacquainted ; three by neglect¬ 
ing book-keeping; ten by trading 
beyond their capital and means, and 
the consequent loss and expense of 
accommodation-bills; forty-nine by ex¬ 
pending more than they could rea¬ 
sonably hope their profits would be, 
though their business yielded a fair 
return; none by any general distress, 
or the falling off of any particular 
branch of trade.’ ’ Another of these 
officers says that, during a period of 
eighteen months, “ fifty-two cases of 
bankruptcy have come under my care. 
It is my opinion that thirty-two of 
these have arisen from an imprudent 
expenditure, and five partly from that 
cause, and partly from a pressure on 
the business in which the bankrupts 
were employed. Fifteen I attribute 
to improvident speculations, combined 
in many instances with an extravagant 
mode of life.’’ 

To these citations the author adds 
the following statements from his per¬ 
sonal means of knowledge. £: Many 
insolvencies are produced by trades¬ 
men’s indolence ; they keep no books, 
or at least imperfect ones, which they 
never balance; they never take stock ; 
they employ servants, if their trade 
be extensive, whom they are too in¬ 
dolent even to supervise, and then 
become insolvent. It is not too much 
to say, that one-half of all the persons 
engaged in trade, even in London, 
never take stock at all: they go on 
year after year without knowing how 
their affairs stand, and at last, like the 
child at school, they find to their sur¬ 
prise, but one halfpenny left in their 
pocket. I will venture to say that not 
one-fourtli of all the persons in the 
provinces, either manufact urers, trades¬ 
men, or farmers, ever take stock; nor 
in fact does one-half of them ever keep 
account-books, deserving any other 
name than memorandum-books. I 
know sufficient of the concerns of 
five hundred small tradesmen in the 
provinces, to be enabled to say, that 
not one-fifth of them ever take stock, 
or keep even the most ordinary ac¬ 
counts. I am prepared to say of such 
tradesmen, from carefully-prepared 


tables, giving every advantage where 
there has been any doubt as to the 
causes of their insolvency, that where 
nine happen from extravagance or 
dishonesty, one” at most “may be 
referred to misfortune alone.”* 

Is it rational to expect among the 
trading classes any high sense of 
justice, honour, or integrity, if the law 
enables men who act in this manner 
to shuffle off the consequences of their 
misconduct upon those who have been 
so unfortunate as to trust them ; and 
practically proclaims that it looks 
upon insolvency thus produced, as 
a “misfortune,” not an offence? 

It is, of course, not denied, that in¬ 
solvencies do arise from causes beyond 
the control of the debtor, and that, in 
many more cases, his culpability is not 
of a high order; and the law ought to 
make a distinction in favour of such 
cases, but not without a searching in¬ 
vestigation ; nor should the case ever 
be let go without having ascertained, 
in the most complete manner practi¬ 
cable, not the fact of insolvency only, 
but the cause of it. To have been 
trusted with money or money’s worth, 
and to have lost or spent it, is primd 
facie evidence of something wrong: 
and it is not for the creditor to prove, 
which he cannot do in one case out of 
ten, that there has been criminality, 
but for the debtor to rebut the pre¬ 
sumption, by laying open the whole 
state of his affairs, and showing either 
that there has been no misconduct, or 
that the misconduct has been of an 
excusable kind. If he fail in this, he 
ought never to be dismissed without a 
punishment proportioned to the degree 
of blame which seems justly imputable 
to him ; which punishment, however, 
might be shortened or mitigated in 
proportion as he appeared likely to 
exert himself in repairing the injury 
done. 

It is a common argument with those 
who approve a relaxed system of in¬ 
solvency laws, that credit, except in 
the great operations of commerce, is 
an evil; and that to deprive creditors 
of legal redress is a judicious means of 
preventing credit from being given. 

* Pp. 50-1. 




INSOLVENCY 


That which is given by retail dealers 
to unproductive consumers is, no 
doubt, to the excess to which it is car¬ 
ried, a considerable evil. This, how¬ 
ever, is only true of large, and espe¬ 
cially of long, credits; for there is 
credit whenever goods are not paid for 
before they quit the shdp, or, at least, 
the custody of the seller; and there 
would be much inconvenience in put¬ 
ting an end to this sort of credit. But 
a large proportion of the debts on 
which insolvency laws take effect, are 
those due by small tradesmen to the 
dealers who supply them : and on no 
class of debts does the demoralization 
occasioned by a bad state of the law, 
operate more perniciously. These are 
commercial credits, which no one 
wishes to see curtailed; their existence 
is of great importance to the general 
industry of the country, and to numbers 
of honest, well-conducted persons of 
small means, to whom it would be a 
great injury that they should be pre¬ 
vented from obtaining the accommo¬ 
dation they need, and would not abuse, 
through the omission of the law to 
provide just remedies against dishonest 
or reckless borrowers. 

But though it were granted that 
retail transactions, on any footing but 
that of ready money payment, are an 
evil, and their entire suppression a fit 
object for legislation to aim at; a 
worse mode of compassing that object 
could scarcely be invented, than to 
permit those who have been trusted by 
others to cheat and rob them with im¬ 
punity. The law does not generally 
select the vices of mankind as the ap¬ 
propriate instrument for inflicting chas¬ 
tisement on the comparatively inno¬ 
cent : when it seeks to discourage any 
course of action, it does so by applying 
inducements of its own, not by outlaw¬ 
ing those who act in the manner it 
deems objectionable, and letting loose 
the predatory instincts of the worthless 
part of mankind to feed upon them. If 
a man has committed murder, the law 
condemns him to death; but it does 
not promise impunity to anybody who 
may kill him for the sake of taking his 
purse. The offence of believing an¬ 
other’s word, even rashly, is not so 


551 

heinous that, for the sake of discourag¬ 
ing it, the spectacle should be brought 
home to every door, of triumphant ras¬ 
cality, with the law on its side, mock¬ 
ing the victims it has made. This 
pestilent example has been very widely 
exhibited since the relaxation of the 
insolvency laws. It is idle to expect 
that, even by absolutely depriving cre¬ 
ditors of all legal redress, the kind of 
credit which is considered objection¬ 
able would really be very much checked. 
Rogues and swindlers are still an ex¬ 
ception among mankind, and people 
will go on trusting each other’s pro¬ 
mises. Large dealers, in abundant 
business, would refuse credit, as many 
of them already do: but in the eager 
competition of a great town, or the de¬ 
pendent position of a village shop¬ 
keeper, what can be expected from the 
tradesman to whom a single customer 
is of importance, the beginner, perhaps, 
who is striving to get into business? 
He will take the risk, even if it were 
still greater; he is ruined if lie cannot 
sell his goods, and he can but be ruined 
if he is defrauded. Nor does it avail 
to say, that he ought to make proper 
inquiries, and ascertain the character 
of those to whom lie supplies goods on 
trust. In some of tire most flagrant 
cases of profligate debtors which have 
come before the Bankruptcy Court, the 
swindler had been able to give, and 
had given, excellent references.* 

* The following extracts from the French 
Code of Commerce, (the translation is that 
of Mr. Fane,) show the great extent to 
which the just distinctions are made, and the 
proper investigations provided for, by French 
law. The word banqueroute, which can only 
be translated by bankruptcy, is, however, 
confined iu France to culpable insolvency, 
which is distinguished into simple bank¬ 
ruptcy and fraudulent bankruptcy. The 
following are cases of simple bankruptcy :— 

“Every insolvent who, in the investigation 
of his affairs, shall appear chargeable with 
one or more of the following offences, shall 
be proceeded against as a simple bank¬ 
rupt. 

“ If his house expenses, which he is bound 
to enter regularly in a day-book, appear 

excessive. 

“ If ho has spent considerable sums at 
play, or in operations of pure hazard. 

“ If it shall appear that be has borrowed 
largely, or resold merchandize at a loss, or 
below the current price, after it appeared by 





552 


BOOK Y. CHAPTER X. § 1. 


CHAPTER X. 


OF INTERFERENCES OF GOVERNMENT GROUNDED ON ERRONEOUS 

THEORIES. 


§ 1. From the necessary functions 
of government, and the effects produced 
on the economical interests of society 
by their good or ill discharge, we pro¬ 
ceed to the functions which belong to 
what I have termed, for want of a 
better designation, the optional class; 
those which are sometimes assumed by 
governments and sometimes not, and 
which it is not unanimously admitted 
that they ought to exercise. 

Before entering on the general prin¬ 
ciples of the question, it will be ad¬ 
visable to clear from our path all those 
cases, in which government interfer¬ 
ence works ill, because grounded on 
false views of the subject interfered 
with. Such cases have no connexion 
with any theory respecting the proper 
limits of interference. There are some 
things with which governments ought 
not to meddle, and other things with 
which they ought; but whether right 
or wrong in itself, the interference 
must work for ill, if government, not 

his last account-taking that his debts ex¬ 
ceeded his assets by one-half. 

“If he has issued negotiable securities 
to three times the amount of his avail¬ 
able assets, according to his last account- 
taking. 

“The following may also be proceeded 
against as simple bankrupts:— 

“ He who has not declared his own insol¬ 
vency in the manner prescribed by law: 

“ He who has not come in and surrendered 
Within the time limited, having no legitimate 
excuse for his absence : 

“He who either produces no books at all, 
or produces such as have been irregularly 
kept, and this although the irregularities may 
not indicate fraud.” 

The penalty for “simple bankruptcy” is 
imprisonment for a term of not less than one 
month, nor more than two years. The fol¬ 
lowing are cases of fraudulent bankruptcy, 
of which the punishment is compulsory 
labour (the galleys) for a term : 

“ If he has attempted to account for his 
property by fictitious expenses and losses, 
or if he does not fully account for all his 
receipts; 


understanding the subject which it 
meddles with, meddles to bring about 
a result which w r ould be mischievous. 
We will therefore begin by passing in 
review various false theories, which 
have from time to time formed the 
ground of acts of government more or 
less economically injurious. 

Former writers on political economy 
have found it needful to devote much 
trouble and space to this department of 
their subject. It has now happily be¬ 
come possible, at least in our own 
country, greatly to abridge this purely 
negative part of our discussions. The 
false theories of political economy 
which have done so much mischief in 
times past, are entirely discredited 
among all who have not lagged behind 
the general progress of opinion ; and 
few of the enactments which were once 
grounded on those theories still help to 
deform the statute-book. As the prin¬ 
ciples on which their condemnation 
rests, have been fully set forth in other 

“ If he has fraudulently concealed any 
sum of money or any debt due to him, or 
any merchandize or other moveables : 

“ If he has made fraudulent sales or gifts 
of his property: 

“ If he has allowed fictitious debts to bo 
proved against his estate : 

“If he has been entrusted with pro¬ 
perty, either merely to keep, or with 
special directions as to its use, and has 
nevertheless appropriated it to his own 
use: 

“ If he has purchased real property in a 
borrowed name: 

“ If he has concealed his books. 

“ The following may also be proceeded 
against in a similar way:— 

“ He who has not kept books, or whose 
books shall not exhibit his real situation as 
regards his debts and credits. 

“ He who, having obtained a protection 
( sauf-conduit ), shall not have duly at¬ 
tended.” 

These various provisions relate only to 
commercial insolvency. The laws in regard 
to ordinary debts are considerably more 
rigorous to the debtor. 




PROTECTIONISM. 


parts of this treatise, we may here 
content ourselves with a few brief in¬ 
dications. 

Of these false theories, the most 
notable is the doctrine of Protection to 
Native Industry; a phrase meaning 
the prohibition, or the discouragement 
by heavy duties, of such foreign com¬ 
modities as are capable of being pro¬ 
duced at home. If the theory involved 
in this system had been correct, the 
practical conclusions grounded on it 
would not have been unreasonable. 
The theory was, that to buy things 
produced at home was a national bene¬ 
fit, and the introduction of foreign 
commodities, generally a national loss. 
It being at the same time evident that 
the interest of the consumer is to buy 
foreign commodities in preference to 
domestic whenever they are either 
cheaper or better, the interest of the 
consumer appeared in this respect to 
be contrary to the public interest; he 
was certain, if left to his own inclina¬ 
tions, to do what according to the 
theory was injurious to the public. 

It was shown, however, in our 
analysis of the effects of international 
trade, as it had been often shown by 
former writers, that the importation of 
foreign commodities, in the common 
course of traffic, never takes place, ex¬ 
cept when it is, economically speaking, 
a national good, by causing the same 
amount of commodities to be obtained 
a t a smaller cost of labour and capital 
to the country. To prohibit, therefore, 
this importation, or impose duties 
which prevent it, is to render the labour 
and capital of the country less efficient 
in production than they would other¬ 
wise be; and compel a waste, of the 
difference between the labour and 
capital necessary for the home produc¬ 
tion of the commodity, and that which 
is required for producing the things 
with which it can be purchased from 
abroad. The amount of national loss 
thus occasioned is measured by the 
excess of the price at which the com¬ 
modity is produced, over that at which 
it could be imported. In the case^of 
manufactured goods, the whole dine- 
rence between the two prices is ab¬ 
sorbed in indemnifying the producers 


5o3 

for waste of labour, or of the capital 
which supports that labour. Those 
who are supposed to be benefited, 
namely the makers of the protected 
articles, (unless they form an exclusive 
company, and have a monopoly against 
their own countrymen as well as 
against foreigners,) do not obtain 
higher profits than other people. All 
is sheer loss, to the country as well as 
to the consumer. When the protected 
article is a product of agriculture—the 
waste of labour not being incurred on 
the whole produce, but only on what 
may be called the last instalment of it 
—the extra price is only in part an 
indemnity for waste, the remainder 
being a tax paid to the landlords. 

The restrictive and prohibitory 
policy was originally grounded on what 
is called the Mercantile System, which 
representing the advantage of foreign 
trade to consist solely in bringing 
money into the country, gave artificial 
encouragement to exportation of goods, 
and discountenanced their importation. 
The only exceptions to the system 
were those required by the system 
itself. The materials and instruments 
of production -were the subjects of a 
contrary policy, directed however to 
the same end; they were freely im¬ 
ported, and not permitted to be ex¬ 
ported, in order that manufacturers, 
being more cheaply supplied with the 
requisites of manufacture, might be 
able to sell cheaper, and therefore to 
export more largely. For a similar 
reason, importation was allowed and 
even favoured, when confined to the 
productions of countries which were 
supposed to take from the country still 
more than it took from them, thus en¬ 
riching it by a favourable balance of 
trade. As part of the same system, 
colonies -were founded, for the supposed 
advantage of compelling them to buy 
our commodities, or at all events not 
to buy those of any other country : in 
return for which restriction, we were 
generally willing to come under an 
equivalent obligation with respect to 
the staple productions of the colonists. 
The consequences of the theory were 
pushed so far, that it was not unusual 
even to give bounties on exportation, 




554 BOOK V. CHAPTER X. § 1. 


and induce foreigners to buy from us 
rather than from other countries, by a 
cheapness which we artificially pro¬ 
duced, by paying part of the price for 
them out of our own taxes. This is a 
stretch beyond the point yet reached 
by any private tradesman in his com¬ 
petition for business. No shopkeeper, 
1 should think, ever made a practice of 
bribing customers by selling goods to 
them at a permanent loss, making it 
up to himself from other funds in his 
possession. 

The principle of the Mercantile 
Theory is now given up even by 
writers and governments who still 
cling to the restrictive system. "What¬ 
ever hold that system has over men’s 
minds, independently of the private 
interests exposed to real or appre¬ 
hended loss by its abandonment, is 
derived from fallacies other than the 
old notion of the benefits of heaping 
up money in the country. The most 
effective of these is the specious plea 
of employing our own countrymen and 
our national industry, instead of feed¬ 
ing and supporting the industry of 
foreigners. The answer to this, from 
the principles laid down in former 
chapters, is evident. "Without revert¬ 
ing to the fundamental theorem dis¬ 
cussed in an early part of the present 
treatise,* respecting the nature and 
sources of employment for labour, it is 
sufficient to say, what has usually been 
said by the advocates of free trade, 
that the alternative is not between em¬ 
ploying cur own people and foreigners, 
but between employing one class and 
another of our own people. The im¬ 
ported commodity is always paid for, 
directly or indirectly, with the produce 
of our own industry: that industry 
being, at the same time, rendered 
more productive, since, with the same 
labour and outlay, we are enabled to 
possess ourselves of a greater quantity 
of the article. Those who have not 
well considered the subject are apt to 
suppose that Our exporting an equiva¬ 
lent in our own produce, for the foreign 
articles we consume, depends on con¬ 
tingencies—on the consent of foreign 


countries to make some corresponding 
relaxation of their own restrictions, or 
on the question whether those from 
whom we buy are induced by that cir¬ 
cumstance to buy more from us ; and 
that, if these things, or things equiva¬ 
lent to them, do not happen, the pay¬ 
ment must be made in money. Now, 
in the first place, there is nothing 
more objectionable in a money pay¬ 
ment than in payment by any other 
medium, if the state of the market 
makes it the most advantageous re¬ 
mittance ; and the money itself was 
first acquired, and would again be re¬ 
plenished, by the export of an equiva¬ 
lent value of our own products. But, 
in the next place, a very short interval 
of paying in money would so lower 
prices as either tc stop a part of the 
importation, or raise up a foreign de¬ 
mand for our produce, sufficient to pay 
for the imports. I grant that this dis¬ 
turbance of the equation of interna¬ 
tional demand would be in some de¬ 
gree to our disadvantage, in the pur¬ 
chase of other imported articles ; and 
that a country which prohibits some 
foreign commodities, does, cceteris 
paribus , obtain those which it does 
not prohibit, at a less price than it 
would otherwise have to pay. To ex¬ 
press the same thing in other words ; 
a country which destroys or prevents 
altogether certain branches of foreign 
trade, thereby annihilating a general 
gain to the world, which would be 
shared in some proportion between 
itself and other countries—does, in 
some circumstances, draw to itself, at 
the expense of foreigners, a larger 
share than would else belong to it of 
the gain arising from that portion of 
its foreign trade which it suffers to 
subsist. But even this it can only be 
enabled to do, if foreigners do not 
maintain equivalent prohibitions or re¬ 
strictions against its commodities. In 
any case, the justice or expediency of 
destroying one of two gains, in order 
to engross a rather larger share of the 
other, does not require much discus¬ 
sion : the gain, too, which is destroyed, 
being, in proportion to the magnitude 
of the transactions, the larger of the 
two, since it is the one which capital, 


* Supra, pp, 49-55. 






PKOTECTIONISM. 


left to itself, is supposed to seek by 
preference. 

Defeated as a general theory, the 
Protectionist doctrine iinds support in 
some particular cases, from considera¬ 
tions which, when really in point, in¬ 
volve greater interests than mere sav¬ 
ing of labour; the interests of national 
subsistence and of national defence. 
The discussions on the Corn Laws 
have familiarized everybody with the 
plea, that we ought to be independent 
of foi’eigners for the food of the 
people ; and the Navigation Laws 
were grounded, in theory and profes¬ 
sion, on the necessity of keeping up a 
“ nursery of seamen” for the navy. 

- On this last subject I at once admit, 
that the object is worth the sacrifice ; 
and that a country exposed to invasion 
by sea, if it cannot otherwise have suf¬ 
ficient ships and sailors of its own to 
secure the means of manning on an 
emergency an adequate fleet, is quite 
right in obtaining those means, even 
at an economical sacrifice in point of 
cheapness of transport. When the 
English navigation laws were enacted, 
the Dutch, from their maritime skill 
and their low rate of profit at home, 
were able to carry for other nations, 
England included, at cheaper rates 
than those nations could carry for 
themselves: which placed all other 
countries at a great comparative dis¬ 
advantage in obtaining experienced 
seamen for their ships of war. The 
Navigation Laws, by which this de¬ 
ficiency was remedied, and at the 
same time a blow struck against the 
maritime power of a nation with which 
England was then frequently engaged 
in hostilities, were probably, though 
economically disadvantageous, politi¬ 
cally expedient. But English ships and 
sailors can now navigate as cheaply as 
those of any other country ; maintain¬ 
ing at least an equal competition with 
the other maritime nations even in 
their own trade. The ends which may 
once have justified Navigation Laws, 
require them no longer, and afforded 
no reason for maintaining this in¬ 
vidious exception to the general rule 
of free trade. 

With regard to subsistence, the plea 


555 

of the Protectionists has been so often 
and so triumphantly met, that it re¬ 
quires little notice here. That country 
is the most steadily as well as the 
most abundantly supplied with food, 
which draws its supplies from the 
largest surface. It is ridiculous to 
found a general system of policy on so 
improbable a danger as that of being 
at war with all the nations of the 
world at once ; or to suppose that, 
even if inferior at sea, a whole country 
could be blockaded like a town, or that 
the growers of food in other countries 
would not be as anxious not to lose an 
advantageous market, as we should be 
not to be deprived of their corn. On 
the subject, however, of subsistence, 
there is one point which deserves more 
especial consideration. In cases of 
actual or apprehended scarcity, many 
countries of Europe are accustomed to 
stop the exportation of food. Is this, 
or not, sound policy ? There can be 
no doubt that in the present state ot 
international morality, a people can¬ 
not, any more than an individual, be 
blamed for not starving itself to feed 
others. But if the greatest amount of 
good to mankind on the whole, were 
the end aimed at in the maxims of 
international conduct, such collective 
churlishness would certainly be con¬ 
demned by them. Suppose that in 
ordinary circumstances the trade in 
food were perfectly free, so that the 
price in one country could not habitu¬ 
ally exceed that in any other by more 
than the cost of carriage, together with 
a moderate profit to the importer. A 
general scarcity ensues, affecting all 
countries, but in unequal degrees. If 
the price rose in one country more 
than in others, it would be a proof that 
in that country the scarcity was se¬ 
verest, and that by permitting food to 
go freely thither from any other coun¬ 
try, it would be spared from a less 
urgent necessity to relieve a greater. 
When the interests, therefore, of all 
countries are considered, free exporta¬ 
tion is desirable. To the exporting 
country considered separately, it may, 
at least on the particular occasion, bo 
an inconvenience : but taking into ac¬ 
count that the country which is now 





556 BOOK V. CH 

the giver, will in some future season 
he the receiver, and the one that is 
benefited by the freedom, I cannot but 
think that even to the apprehension of 
food-rioters it might be made apparent, 
that in such cases they should do to 
others what they would wish done to 
themselves. 

In countries in which the system of 
Protection is declining, but not yet 
wholly given up, such as the United 
States, a doctrine has come into notice 
which is a sort of compromise between 
free trade and restriction, namely, that 
protection for protection’s sake is im¬ 
proper, but that there is nothing ob¬ 
jectionable in having as much protec¬ 
tion as may incidentally result from a 
tariff framed solely for revenue. Even 
in England, regret is sometimes ex¬ 
pressed that a “moderate fixed duty” 
was not preserved on corn, on account 
of the revenue it would yield. Inde¬ 
pendently, however, of the general 
impolicy of taxes on the necessaries of 
life, this doctrine overlooks the fact, 
that revenue is received only on the 
quantity imported, but that the tax is 
paid on the entire quantity consumed. 
To make the public pay much that the 
treasury may receive a little, is not an 
eligible mode of obtaining a revenue. 
In the case of manufactured articles 
the doctrine involves a palpable incon- 
sistenc 3 r . The object of the duty as a 
means of revenue, is inconsistent with 
its affording, even incidentally, any 
protection. It can only operate as 
protection in so far as it prevents im¬ 
portation ; and to whatever degree it 
prevents importation, it affords no 
revenue. 

The only case in which, on mere 
principles of political economy, pro¬ 
tecting duties can be defensible, is 
when they are imposed temporarily 
(especially in a young and rising na¬ 
tion) in hopes of naturalizing a foreign 
industry, in itself perfectly suitable to 
the circumstances of the country. The 
superiority of one country over another 
in a branch of production, often arises 
only from having begun it sooner. 
There may be no inherent advantage 
on one part, or disadvantage on the 
other, but only a present superiority of 


VPTEB, X. § 1. 

acquired skill and experience. A 
country which has this skill and ex¬ 
perience yet to acquire, may in other 
respects be better adapted to the pro¬ 
duction than those which were earlier 
in the field: and besides, it is a just 
remark of Mr. Bae, that nothing has a 
greater tendency to promote improve¬ 
ments in any branch of production, than 
its trial under a new set of conditions. 
But it cannot be expected that indi¬ 
viduals should, at their own risk, or 
rather to their certain loss, introduce 
a new manufacture, and bear the 
burthen of carrying it on until the 
producers have been educated up to 
the level of those with whom the pro¬ 
cesses are traditional. A protecting 
duty, continued for a reasonable time, 
will sometimes be the least inconve¬ 
nient mode in which the nation can 
tax itself for the support of such an 
experiment. But the protection should 
be confined to cases in which there is 
good ground of assurance that the in¬ 
dustry which it fosters will after a 
time be able to dispense with it; nor 
should the domestic producers ever be 
allowed to expect that it will be con¬ 
tinued to them beyond the time neces¬ 
sary for a fair trial of what they are 
capable of accomplishing. 

The only writer of any reputation as 
a political economist, who now adheres 
to the Protectionist doctrine, Mr. H. 
C. Carey, rests its defence, in an 
economic point of view, principally on 
two reasons. One is, the great saving 
in cost of carriage, consequent on pro¬ 
ducing commodities at or very near to 
the place where they are to be con¬ 
sumed. The whole of the cost of car¬ 
riage, both on the commodities im¬ 
ported and on those exported in ex¬ 
change for them, he regards as a 
direct burthen on the producers, and 
not, as is obviously the truth, on the 
consumers. On whomsoever it falls, 
it is, without doubt, a burthen on the 
industry of the world. But it is ob¬ 
vious (and that Mr. Carey does not 
see it, is one of the many surprising 
things in his book) that the burthen 
is only borne for a more than equi¬ 
valent advantage. If the commodity 
is bought in a foreign country wita 






PROTECTIONISM. 


domestic produce in spite of the double 
cost of carriage, the fact proves that, 
heavy as that cost may be, the saving 
in cost of production outweighs it, and 
the collective labour of the country is 
on the whole better remunerated than 
if the article were produced at home. 
Cost of carriage is a natural protecting 
duty, which free trade has no power 
to abrogate: and unless America 
gained more by obtaining her manu¬ 
factures through the medium of her 
corn and cotton, than she’loses in cost 
of carriage, the capital employed in 
producing corn and cotton in annually 
increased quantities for the foreign 
market, would turn to manufactures 
instead. The natural advantage at¬ 
tending a mode of industry in which 
there is less cost of carriage to pay, 
can at most be only a justification for 
a temporary and merely tentative pro¬ 
tection. The expenses of production 
being always greatest at first, it may 
happen that the home production, 
though really the most advantageous, 
may not become so until after a certain 
duration of pecuniary loss, which it is 
not to be expected that private specu¬ 
lators should incur in order that their 
successors may be benefited by their 
ruin. I have therefore conceded that 
in a new country, a temporary pro¬ 
tecting duty may sometimes be econo¬ 
mically defensible ; on condition, how¬ 
ever, that it be strictly limited in 
point of time, and provision be made 
that during the latter part of its 
existence it be on a gradually de¬ 
creasing scale. Such temporary pro¬ 
tection is of the same nature as a 
patent, and should be governed by 
similar conditions. 

The remaining argument of Mr. 
Carey in support of the economic 
benefits of Protectionism, applies only 
to countries whose exports consist 
of agricultural produce. He argues, 
that by a trade of this description they 
actually send away their soil; the dis¬ 
tant consumers not giving back to the 
land of the country, as home consumers 
would do, the fertilizing elements 
which they abstract from it. This 
argument deserves attention, on ac¬ 
count of the physical truth on which 


557 

it is founded ; a truth which has only 
lately come to be understood, but 
which is henceforth destined to be a 
permanent element in the thoughts of 
statesmen, as it must always have 
been in the destinies of nations. To 
the question of Protectionism, how¬ 
ever, it is irrelevant. That the im¬ 
mense growth of raw produce in Ame¬ 
rica to be consumed in Europe, is pro¬ 
gressively exhausting the soil of the 
Eastern, and even of the older Western 
States, and that both are already far 
less productive than formerly, is cre¬ 
dible in itself, even if no one bore wit¬ 
ness to it. But what I have already 
said respecting cost of carriage, is true 
also of the cost of manuring. Free 
trade does not compel America to ex¬ 
port corn ; she would cease to do so, if 
it ceased to be to her advantage. As, 
then, she would not persist in export¬ 
ing raw produce and importing manu¬ 
factures, any longer than the labour 
she saved by doing so, exceeded what 
the carriage cost her; so, when it be¬ 
came necessary for her to replace in 
the soil the elements of fertility which 
she had sent away, if the saving in 
cost of production were more than, 
equivalent to the cost of carriage and 
of manure together, manure would be 
imported, and if not, the export of corn 
would cease. It is evident that one of 
these two things would already have 
taken place, if there had not been near 
at hand a constant succession of new 
soils, not yet exhausted of their fer¬ 
tility, the cultivation of which enables 
her, whether judiciously or not, to 
postpone the question of manure. As 
soon as it no longer answers better to 
break up new soils than to manure 
the old, America will either become a 
regular importer of manure, or will 
without protecting duties grow corn 
for herself only, and manufacturing for 
herself, will make her manure, as 
Mr. Carey desires, at home.* 

* To this Mr. Carey would reply (indeed, 
he has already so replied in advance), that 
of all commodities, manure is the least, sus¬ 
ceptible of being conveyed to a distance. 
This is true of sewage, and of stable manure, 
but not true of the ingredients to which those 
manures owe their efficiency. These, on the 
contrary, are chiefly substances containing 





558 BOOK V. CHAPTER X. § 2. 


For these obvious reasons, I hold 
Mr. Carey’s economic arguments for 
Protectionism to be totally invalid. The 
economic, however, is far from being 
the strongest point of his case. Ame¬ 
rican Protectionists often reason ex¬ 
tremely ill, but it is an injustice to 
them to suppose that their Protec¬ 
tionist creed rests upon nothing su¬ 
perior to an economic blunder: many 
of them have been led to it much more 
by consideration for the higher inte¬ 
rests of humanity, than by purely eco¬ 
nomic reasons. They, and Mr. Carey 
at their head, deem it a necessary 
condition of human improvement that 
towns should abound; that men should 
combine their labour, by means of in¬ 
terchange, with near neighbours—with 
people of pursuits, capacities, and 
mental cultivation different from their 
own, sufficiently close at hand for mu¬ 
tual sharpening of wits and enlarging 
of ideas—rather than with people on 
the opposite side of the globe. They 
believe that a nation all engaged in 
the same, or nearly the same, pursuit 
—a nation all agricultural—cannot at¬ 
tain a high state of civilization and 
culture. And for this there is a great 
foundation of reason. If the difficulty 
can be overcome, the United States, 
with their free institutions, their uni¬ 
versal schooling, and their omnipresent 
press, are the people to do it; but 
whether this is (possible or not, is still 
a problem. So far, however, as it is 
an object to check the excessive dis¬ 
persion of the population, Mr. Wake¬ 
field has pointed out a better way: to 

great fertilizing power in small bulk; sub¬ 
stances of which the human body requires but 
a small quantity, and hence peculiarly suscep¬ 
tible of being imported ; the mineral alkalies 
and the phosphates. The question, indeed, 
mainly concerns the phosphates ; for of the 
alkalies, soda is procurable everywhere, 
while potass, being one of the constituents 
of granite and the other feldspathic rocks, 
exists in many subsoils, by whose progressive 
decomposition it is rene wed; a large quan¬ 
tity also being brought down in the deposits 
of rivers. As for the phosphates, they, in the 
very convenient form of pulverised bones, are 
a regular article of commerce, largely im¬ 
ported into England, as they are sure to be 
into any country where the conditions of 
industry make it worth while to pay the 
price. 


modify the existing method of dis¬ 
posing of the unoccupied lands, by 
raising their price; instead of lower¬ 
ing it, or giving away the land gratui¬ 
tously, as is largely done since the 
passing of the Homestead Act. To 
cut the knot in Mr. Carey’s fashion, by 
Protectionism, it would be necessary 
that Ohio and Michigan should be 
protected against Massachusetts as 
well as against England: for the 
manufactories of New England, no 
more than those of the old country, 
accomplish his desideratum of bring¬ 
ing a manufacturing population to the 
doors of the Western farmer. Boston 
and New York do not supply the want 
of local towns to the Western Prairies, 
any better than Manchester; and it is 
as difficult to get back the manure 
from the one place as from the other. 

There is only one part of the Pro¬ 
tectionist scheme which requires any 
further notice : its policy towards colo¬ 
nies. and foreign dependencies; that 
of compelling them to trade exclusively 
with the dominant country. A country 
which thus secures to itself an extra 
foreign demand for its commodities, 
undoubtedly gives itself some advan¬ 
tage in the distribution of the general 
gains of the commercial world. Since, 
however, it causes the industry and 
capital of the colony to be diverted 
from channels, which are proved to be 
the most productive, inasmuch as they 
are those into which industry and ca¬ 
pital spontaneously tend to flow ; there 
is a loss, on the whole, to the produc¬ 
tive powers of the world, and the 
mother country does not gain so much 
as she makes the colony lose. If, 
therefore, the mother country refuses 
to acknowledge any reciprocity of obli¬ 
gation, she imposes a tribute on the 
colony in an indirect mode, greatly 
more oppressive and injurious than the 
direct. But if, with a more equitable 
spirit, she submits herself to corre¬ 
sponding restrictions for the benefit of 
the colony, the result of the whole 
transaction is the ridiculous one, that 
each party loses much, in order that 
the other may gain a little. 

§ 2, Next to the system of Protec- 



USURY 

tion, among mischievous interferences 
with the spontaneous course of indus¬ 
trial transactions, may he noticed cer¬ 
tain interferences with contracts. One 
instance is that of the Usury Laws. 
These originated in a religious preju¬ 
dice against receiving interest on 
money, derived from that fruitful source 
of mischief in modern Europe, the at¬ 
tempted adaptation to Christianity of 
doctrines and precepts drawn from the 
Jewish law. In Mahomedan nations 
the receiving of interest is formally in¬ 
terdicted, and rigidly abstained from; 
and Sismondi has noticed, as one 
among the causes of the industrial in¬ 
feriority of the Catholic, compared with 
the Protestant parts of Europe, that 
the Catholic church in the Middle 
Ages gave its sanction to the same pre¬ 
judice ; which subsists, impaired but 
not destroyed, wherever that religion is 
acknowledged. Where law or con¬ 
scientious scruples prevent lending at 
interest, the capital which belongs to 
persons not in business is lost to pro¬ 
ductive purposes, or can be applied to 
them only m peculiar circumstances of 
personal connexion, or by a subterfuge. 
Industry is thus limited to the capital 
of the undertakers, and to what they 
can borrow from persons not bound by 
the same laws or religion as them¬ 
selves. In Mussulman countries the 
bankers and money dealers are either 
Hindoos, Armenians, or Jews. 

In more improved countries, legisla¬ 
tion no longer discountenances the re¬ 
ceipt of an equivalent for money lent; 
but it has everywhere interfered with 
the free agency of the lender and bor¬ 
rower, by fixing a legal limit to the 
rate of interest, and making the re¬ 
ceipt of more than the appointed maxi¬ 
mum a penal offence. This restriction, 
though approved by Adam Smith, has 
been condemned by all enlightened 
persons since the triumphant onslaught 
made upon it by Bentham in his 
“ Letters on Usury,” which may still 
be referred to as the best extant writing 
on the subject. 

Legislators may enact and maintain 
Usury Laws from one of two motives: 
ideas of public policy, or concern for 
the interest of the parties in the con- 


LAWS. • 559 

tract; in this case, of one party only, 
the borrower. As a matter of policy, 
the notion may possibly be, that it is 
for the general good that interest 
should be low. It is however a mis¬ 
apprehension of the causes which in¬ 
fluence commercial transactions, to sup¬ 
pose that the rate of interest is really 
made lower by law, than it would be 
made by the spontaneous play of supply 
and demand. If the competition of 
borrowers, left unrestrained, would 
raise the rate of interest to six per 
cent, this proves that at five there 
would be a greater demand for loans, 
than there is capital in the market to 
supply. If the law in these circum¬ 
stances permits no interest beyond five 
per cent, there will be some lenders, 
who not choosing to disobey the law, 
and not being in a condition to employ 
their capital otherwise, will content 
themselves with the legal rate : but 
others, finding that in a season of press¬ 
ing demand, more may be made of 
their capital by other means than they 
are permitted to make by lending it, 
will not lend it at all; and the loan¬ 
able capital, already too small for the 
demand, will be still further dimi¬ 
nished. Of the disappointed candi¬ 
dates there will be many at such 
periods, who must have their neces¬ 
sities supplied at any price, and these 
will readily find a third section of 
lenders, who will not be averse to join 
in a violation of the law, either by cir¬ 
cuitous transactions partaking of the 
nature of fraud, or by relying on the 
honour of the borrower. The extra 
expense of the roundabout mode of pro¬ 
ceeding, and an equivalent for the risk 
of non-payment and of legal penalties, 
must be paid by the borrower, over 
and above the extra interest which 
would have been required of him by 
the general state of the market. The 
laws which were intended to lower the 
price paid by him for pecuniary accom¬ 
modation, end thus in greatly increasing 
it. These laws have also a directly 
demoralizing tendency. Knowing the 
difficulty of detecting an illegal pecu¬ 
niary transaction between two persons, 
in which no third person is involved, so 
long as it is the interest of both to keep 





5G0 BOOK V. CHAPTER X. § 2. 


the secret, legislators have adopted 
tho expedient of tempting the borrower 
to become the informer, by making the 
annulment of the debt a part of the 
penalty for the offence ; thus rewarding 
men for obtaining the property of 
others by false promises, and then not 
only refusing payment, but invoking 
legal penalties on those who have 
helped them in their need. The moral 
sense of mankind very rightly in¬ 
famizes those who resist an otherwise 
just claim on the ground of usury, and 
tolerates such a plea only when re¬ 
sorted to as the best legal defence 
available against an attempt really 
considered as partaking of fraud or 
extortion. But this very severity of 
public opinion renders the enforce¬ 
ment of the laws so difficult, and the 
infliction of the penalties so rare, that 
when it does occur it merely victimizes 
an individual, and has no effect on 
general practice. 

In so far as the motive of the re¬ 
striction may be supposed to be, not 
public policy, but regard for the in¬ 
terest of the borrower, it ■would be diffi¬ 
cult to point out any case in which 
such tenderness on the legislator’s part 
is more misplaced. A person of sane 
mind, and of the age at which persons 
are legally competent to conduct their 
own concerns, must be presumed to be 
a sufficient guardian of his pecuniary 
interests. If he may sell an estate, or 
grant a release, or assign away all his 
property, without control from the law, 
it seems very unnecessary that the 
only bargain which he cannot make 
without its intermeddling, should be a 
loan of money. The law seems to 
presume that the money-lender, dealing 
with necessitous persons, can take ad¬ 
vantage of their necessities, and exact 
conditions limited only by his own plea¬ 
sure. It might be so if there were 
only one money-lender within reach. 
But when there is the whole monied 
capital of a wealthy community to re¬ 
sort to, no borrower is placed under 
any disadvantage in the market merely 
by the urgency of his need. If he can¬ 
not borrow at the interest paid by 
other people, it must be because he 
cannot give such good security: and 


competition will limit the extra de¬ 
mand to a fair equivalent for the risk 
of his proving insolvent. Though the 
law intends favour to the borrower, it 
is to him above all that injustice is^ 
in this case, done bv it. What can be 
more unjust than that a person who 
cannot give perfectly good security, 
should be prevented from borrowing of 
persons who are willing to lend money 
to him, by their not being permitted to 
receive the rate of interest which 
would be a just equivalent for their 
risk ? Through the mistaken kindness 
of the law, he must either go without 
the money which is perhaps necessary 
to save him from much greater losses,, 
or be driven to expedients of a far 
more ruinous description, which the 
law either has not found it possible, or 
has not happened, to interdict. 

Adam Smith rather hastily ex¬ 
pressed the opinion, that only two 1 
kinds of persons, “ prodigals and pro¬ 
jectors,could require to borrow money 
at more than the market rate of in¬ 
terest. He should have included all 
persons who are in any pecuniary diffi¬ 
culties, however temporary their ne¬ 
cessities may be. It may happen tO' 
any person in business, to be disap¬ 
pointed of the resources on which he 
had calculated for meeting some en¬ 
gagement, the non-fulfilment of which 
on a fixed day would be bankruptcy. 
In periods of commercial difficulty, this 
is the condition of many prosperous 
mercantile firms, who become compe¬ 
titors for the small amount of dispos¬ 
able capital which, in a time of general 
distrust, the owners are.willing to part 
with. Under the English usury laws, 
now happily abolished, the limitations 
imposed by those laws were felt as a 
most serious aggravation of every com¬ 
mercial crisis. Merchants who could 
have obtained the aid they required at 
an interest of seven or eight per cent 
for short periods, were obliged to give 
20 or 30 per cent, or to resort to forced 
sales of goods at a still greater loss. 
Experience having obtruded these evils 
on the notice of Parliament, the sort 
of compromise took place, of which 
English legislation affords so many in¬ 
stances, and which helps to make our 




REGULATION OF THE PRICE OF FOOD. 


laws and policy the mass of incon¬ 
sistency that they are. The law was 
reformed as a person reforms a tight 
shoe, who cuts a hole in it where it 
pinches hardest, and continues to wear 
it. Retaining the erroneous principle 
as a general rule, Parliament allowed 
an exception in the case in which the 
practical mischief was most flagrant. 
It left the usury laws unrepealed, hut 
exempted hills of exchange, of not 
more than three months’ date, from 
their operation. Some years afterwards 
the laws were repealed in regard to all 
other contracts, but left in force as to 
all those which relate to land. Not a 
particle of reason could be given for 
making this extraordinary distinction; 
but the “ agricultural mind” was of 
opinion that the interest on mort¬ 
gages, though it hardly ever came up 
to the permitted point, would come up 
to a still higher point; and the usury 
laws were maintained that the land¬ 
lords might, as they thought, be en¬ 
abled to borrow below the market rate, 
as the corn-laws were kept up that the 
same class might be able to sell corn 
above the market rate. The modesty 
of the pretension was quite worthy of 
the intelligence which could think that 
the end aimed at was in any way for¬ 
warded by the means used. 

YYitli regard to the “ prodigals and 
projectors” spoken of by Adam Smith; 
no law can prevent a prodigal from 
ruining himself, unless it lays him or 
his property under actual restraint, 
according to the unjustifiable practice 
of the Roman Law and some of the 
Continental systems founded on it. 
T) ie only effect of usury laws upon a 
prodigal, is to make his ruin rather 
’more expeditious, by driving him to a 
disreputable class of money-dealers, 
and rendering the conditions more 
onerous by the extra risk created by 
the law. As for projectors, a term, in 
its unfavourable sense, rather unfairly 
applied to every person who has a 
-project; such laws may put a veto 
upon the prosecution of the most pro¬ 
mising enterprise, when planned, as it 
generally is, by a person who does not 
possess capital adequate to its success¬ 
ful completion. Many of the greatest 

P.E. 


improvements were at first looked 
shyly on by capitalists, and had to wait 
long before they found one sufficiently 
adventurous to be the first in a new 
path : many years elapsed before Ste¬ 
phenson could convince even the en¬ 
terprising mercantile public of Liver¬ 
pool and Manchester, of the advantage 
of substituting railways for turnpike- 
roads ; and plans on which great labour 
and large sums have been expended 
with little visible result, (the epoch in 
their progress when predictions of 
failure are most rife,) may be indefi¬ 
nitely suspended, or altogether dropped, 
and the outlay all lost, if, when the 
original funds are exhausted, the law 
will not allow more to be raised on the 
terms on which people are willing tc 
expose it to the chances of an enter¬ 
prise not yet secure of success. 

§ 3. Loans are not the only kind of 
contract, of which governments have 
thought themselves qualified to regu¬ 
late the conditions better than the 
persons interested. There is scarcely 
any commodity which they have not, 
at some place or time, endeavoured to 
make either dearer or cheaper than it 
would be if left to itself. The most 
plausible case for artificially cheapen¬ 
ing a commodity, is that of food. The 
desirableness of the object is in this 
case undeniable. But since the ave¬ 
rage price of food, like that of other 
things, conforms to the cost of produc¬ 
tion with the addition of the usual 
profit; if this price is not expected by 
the farmer, he will, unless compelled 
by law, produce no more than he re¬ 
quires for his own consumption: and 
the law therefore, if absolutely deter¬ 
mined to have food cheaper, must sub¬ 
stitute, for the ordinary motives to 
cultivation, a system of penalties. If 
it shrinks from doing this, it has no 
resource but that of taxing the whole 
nation, to give a bounty or premium to 
the grower or importer of corn, thus 
giving everybody cheap bread at the 
expense of all: in reality a largess to 
those who do not pay taxes, at the ex¬ 
pense of those who do ; one of the forms 
of a practice essentially bad, that of 
converting the working classes into 

0 0 





562 BOOK Y. CHAPTER X. § 4. 


un working classes by making them a 
present of subsistence. 

It is not however so much the gene¬ 
ral or average price of food, as its 
occasional high price in times of emer¬ 
gency, which governments have studied 
to reduce. In some cases, as for ex¬ 
ample the famous “maximum” of the 
revolutionary government of 1793, the 
compulsory regulation was an attempt 
by the ruling powers to counteract the 
necessary consequences of their own 
acts; to scatter an indefinite abun¬ 
dance of the circulating medium with 
one hand, and keep down prices with 
the other; a thing manifestly impos¬ 
sible under any regime except one of 
unmitigated terror. In case of actual 
scarcity, governments are often urged, 
as they were in the Irish emergency of 
1847, to take measures of some sort 
for moderating the price of food. But 
the price of a thing cannot be raised 
by deficiency of supply, beyond what 
is sufficient to make a corresponding 
reduction of the consumption; and if a 
government prevents this reduction 
from being brought about by a rise of 
price, there remains no mode of effect¬ 
ing it unless by taking possession of 
all the food, and serving it out in 
rations, as in a besieged town. In a 
real scarcity, nothing can afford gene¬ 
ral relief, except a determination by 
the richer classes to diminish their own 
consumption. If they buy and consume 
their usual quantity of food, and con¬ 
tent themselves with giving money, 
they do no good. The price is forced 
up until the poorest competitors have 
no longer the means of competing, and 
the privation of food is thrown exclu¬ 
sively upon the indigent, the other 
classes being only affected pecuniarily. 
When the supply is insufficient, some¬ 
body must consume less, and if every 
rich person is determined not to be that 
soiiiebody, all they do by subsidizing 
their poorer competitors is to force up 
the price so much the higher, with no 
effect but to enrich the corn-dealers, 
the very reverse of what is desired by 
those who recommend such measures. 
All that governments can do in these 
emergencies, is to counsel a general 
moderation in consumption, and to in¬ 


terdict such kinds of it as are not of 
primary importance. Direct measures 
at the cost of the state, to procure food 
from a distance, are expedient when 
from peculiar reasons the thing is not 
likely to be done by private speculation. 
In any other case they are a great 
error. Private speculators will not, in 
such cases, venture to compete with 
the government; and though a govern¬ 
ment can do more than any one mer¬ 
chant, it cannot do nearly so much as 
all merchants. 

§ 4. Governments, however, are 
oftener chargeable with having at¬ 
tempted, too successfully, to make 
things dear, than with having aimed 
by wrong means at making them 
cheap. The usual instrument for pro¬ 
ducing artificial dearness is monopoly. 
To confer a monopoly upon a producer 
or dealer, or upon a set of producers or 
dealers not too numerous to combine, 
is to give them the power of levying 
any amount of taxation on the public, 
for their individual benefit, which will 
not make the public forego the use of 
the commodity. When the sharers in 
the monopoly aro so numerous and so 
widely scattered that they are pre¬ 
vented from combining, the evil is 
considerably less : but even then the 
competition is not so active among a 
limited, as among an unlimited num¬ 
ber. Those who feel assured of a fair 
average proportion in the general 
business, are seldom eager to get a 
larger share, by foregoing a portion of 
their profits. A limitation of competi¬ 
tion, however partial, may have mis¬ 
chievous effects quite disproportioned 
to the apparent cause. The mere ex¬ 
clusion of foreigners, from a branch of 
industry open to the free competition 
of every native, has been known, even 
in England, to render that branch a 
conspicuous exception to the general 
industrial energy of the country. The 
silk manufacture of England remained 
fill* behind that of other countries of 
Europe, so long as the foreign fabrics 
were prohibited. In addition to the 
tax levied for the profit, real or imagi¬ 
nary, of the monopolists, the consumer 
thus pays an additional tax for their 




MONOPOLIES.—COMBINATION LAWS. 563 


laziness and incapacity. When re¬ 
lieved from the immediate stimulus of 
competition, producers and dealers 
grow indifferent to the dictates of their 
ultimate pecuniary interest; preferring 
to the most hopeful prospects, the pre¬ 
sent ease of adhering to routine. A 
person who is already thriving, seldom 
puts himself out of his way to com¬ 
mence even a lucrative improvement, 
unless urged by the additional motive 
of fear lest some rival should supplant 
him by getting possession of it before 
him. 

The condemnation of monopolies 
ought not to extend to patents, by 
■which the originator of an improved 
process is allowed to enjoy, for a limited 
period, the exclusive privilege of using 
his own improvement. This is not 
making the commodity dear for his 
benefit, but merely postponing a part 
of the increased cheapness which the 
public owe to the inventor, in order to 
compensate and reward him for the 
service. That he ought to be both 
compensated and rewarded for it, will 
not be denied, and also that if all were 
at once allowed to avail themselves of 
his ingenuity, without having shared 
the labours or the expenses which he 
had to incur in bringing his idea into 
a practical shape, either such expenses 
and labours would be undergone by 
nobody, except very opulent and very 
public-spirited persons, or the state 
must put a value on the service ren¬ 
dered by an inventor, and make him a 
pecuniary grant. This has been done 
in some instances, and may be done 
without inconvenience in cases of very 
conspicuous public benefit; but in 
general an exclusive privilege, of tem¬ 
porary duration, is preferable; because 
it leaves nothing to any one’s dis¬ 
cretion ; because the reward conferred 
by it depends upon the invention’s 
being found useful, and the greater the 
usefulness the greater the reward ; and 
because it is paid by the very persons 
to whom the service is rendered, the 
consumers of the commodity. So de¬ 
cisive, indeed, are those considerations, 
that if the system of patents were 
abandoned for that of rewards by the 
state, the best shape which these could 


assume would be that of a small tem¬ 
porary tax, imposed for the inventor’s 
benefit, on all persons making use of 
the invention. To this, however, or to 
any other system which would vest in 
the state the power of deciding whether 
an inventor should derive any pecu¬ 
niary advantage from the public benefit 
which he confers, the objections are 
evidently stronger and more funda¬ 
mental than the strongest which can 
possibly be urged against patents. It 
is generally admitted that the present 
Patent Laws need much improvement; 
but in this case, as well as in the 
closely analogous one of Copyright, it 
would be a gross immorality in the law 
to set everybody free to use a person’s 
work without his consent and without 
giving him an equivalent. I have 
seen with real alarm several recent 
attempts, in quarters carrying some 
authority, to impugn the principle of 
patents altogether ; attempts which, if 
practically successful, would enthrone 
free stealing under the prostituted 
name of free trade, and make the men 
of brains, still more than at present, 
the needy retainers and dependents of 
the men of money-bags. 

§ 5. 1 pass to another kind of go¬ 
vernment interference, in which the 
end and the means are alike odious, 
but which existed in England until 
not so much as a generation ago, and 
in France up to the year 18G4. I 
mean the laws against combinations 
of workmen to raise wages; laws en¬ 
acted and maintained for the declared 
purpose of keeping wages low, as the 
famous Statute of Labourers was passed 
by a legislature of employers, to pre¬ 
vent the labouring class, when its 
numbers had been thinned by a pesti¬ 
lence, from taking advantage of the 
diminished competition to obtain higher 
wages. Such laws exhibit the infernal 
spirit of the slave master, when to re¬ 
tain the working classes in avowed 
slavery has ceased to be practicable. 

If it were possible for the working 
classes, by combining among them¬ 
selves, to raise or keep up the general 
rate of wages, it needs hardly be said 
that this would be a thing not to be> 

0 0 2 




564 BOOK Y. CHAPTER X. § 5. 


punished, but to be welcomed and re¬ 
joiced at. Unfortunately the effect is 
quite beyond attainment by such 
means. The multitudes who compose 
the working class are too numerous 
and too widely scattered to combine at 
all, much more to combine effectually. 
If they could do so, they might doubt¬ 
less succeed in diminishing the hours 
of labom-, and obtaining the same 
wages for less work. But if they 
aimed at obtaining actually higher 
wages than the rate fixed by demand 
and supply—the rate which distributes 
\ the whole circulating capital of the 
country among the entire working po¬ 
pulation—this could only be accom¬ 
plished by keeping a part of their 
number permanently out of employ¬ 
ment. As support from public charity 
would of course be refused to those 
who could get work and would not 
accept it, they would be thrown for 
support upon the trades union of which 
they were members; and the work¬ 
people collectively would be no better 
off than before, having to support the 
same numbers out of the same aggre¬ 
gate wages. In this way, however, 
the class would have its attention for¬ 
cibly drawn to the fact of a superfluity 
of numbers, and to the necessity, if 
they would have high wages, of pro¬ 
portioning the supply of labour to the 
demand. 

Combinations to keep up wages 
are sometimes successful, in trades 
where the workpeople are few in num¬ 
ber, and collected in a small number of 
local centres. It is questionable if com¬ 
binations ever had the smallest effect 
on the permanent remuneration of spin¬ 
ners or weavers ; but the journeymen 
type-founders, by a close combination, 
are able, it is said, to keep up a rate of 
wages much beyond that which is usual 
in employments of equal hardness and 
skill; and even the tailors, a much more 
numerous class, are understood to have 
had, to some extent, a similar success. 
A rise of wages, thus confined to par¬ 
ticular employments, is not (like a rise 
of general wages) defrayed from profits, 
but raises the value and price of the 
particular article, and falls on the con¬ 
sumer ; the capitalist who produces the 


commodity being only injured in so far 
as the high price tends to narrow the 
market; and not even then, unless it 
does so in a greater ratio Ilian that of 
the rise of price : for though, at higher 
wages, he employs, with a given capital, 
fewer workpeople, and obtains less of 
the commodity, yet, if he can sell the 
whole of this diminished quantity at 
the higher price, his profits are as great 
as before. 

This partial rise of wages, if not 
gained at the expense of the remainder 
of the working class, ought not to be 
regarded as an evil. The consumer, 
indeed, must pay for it; but cheapness 
of goods is desirable only when the 
cause of it is that their production 
costs little labour, and not when occa¬ 
sioned by that labour’s being ill remu¬ 
nerated. It may appear, indeed, at 
first sight, that the high wages of the 
type-founders (for example) are ob¬ 
tained at the general cost of the labour¬ 
ing class. This high remuneration 
either causes fewer persons to find em¬ 
ployment in the trade, or, if not, must 
lead to the investment of more capital 
in it, at the expense of other trades : 
in the first case, it throws an additional 
number of labourers on the general 
market; in the second, it withdraws 
from that market a portion of the de¬ 
mand: effects, both of which are inju¬ 
rious to the working classes. Such, 
indeed, would really be the result of a 
successful combination in a particular 
trade or trades, for some time after its 
formation ; but when it is a permanent 
thing, the principles so often insisted 
upon in this treatise, show that it can 
have no such etfect. The habitual 
earnings of the working classes at large 
can be affected by nothing but the 
habitual requirements of the labouring 
jreople: these indeed may be altered, 
but while they remain the same, wages 
never fall permanently below the stan¬ 
dard of these requirements, and do not 
long remain above that standard. If 
there had been no combinations in par¬ 
ticular trades, and the wages of those 
trades had never been kept above the 
common level, there is no reason to 
suppose that the common level would 
have been at all higher than it now is. 




COMBINATION LAWS. 565 


There would merely have been a greater 
number of people altogether, and a 
smaller number of exceptions to the 
ordinary low rate of wages. 

If, therefore, no improvement were 
to be hoped for in the general circum¬ 
stances of the working classes, the suc¬ 
cess of a portion of them, however small, 
in keeping their wages by combination 
above the market rate, would be wholly 
a matter of satisfaction. But when 
the elevation of the character and con¬ 
dition of the entire body has at last 
become a thing not beyond the reach 
. of rational effort, it is time that the 
better paid classes of skilled artisans 
should seek their own advantage in 
common with, and not by the exclusion 
of, their fellow labourers. While they 
continue to fix their hopes on hedging 
themselves in against competition, and 
protecting their own wages by shutting 
out others from access to their employ¬ 
ment, nothing better can be expected 
from them than that total absence of 
any large and generous aims, that al¬ 
most open disregard of all other objects 
than high wages and little work for 
their own small body, which were so 
deplorably evident in the proceedings 
and manifestoes of the Amalgamated 
Society of Engineers during their quar¬ 
rel with their employers. Success, even 
if attainable, in raising up a protected 
class of working people, would now be 
a hindrance, instead of a help, to the 
emancipation of the working classes at 
large. 

But though combinations to keep up 
wages are seldom effectual, and when 
effectual, are, for the reasons which I 
have assigned, seldom desirable, the 
right of making the attempt is one 
which cannot be refused to any portion 
of the working population without great 
injustice, or without the probability of 
fatally misleading them respecting the 
circumstances which determine their 
condition. So long as combinations to 
raise wages were prohibited by law, 
the law appeared to the operatives to 
be the real cause of the low wages 
which there was no denying that it 
had done its best to produce. Experi¬ 
ence of strikes has been the best teacher 
of the labouring classes on the subject 


of the relation between wages and the 
demand and supply of labour: and it 
is most important that this course of 
instruction should not be disturbed. 

It is a great error to condemn, pet 
se and absolutely, either trades unions 
or the collective action of strikes. I 
grant that a strike is wrong whenever 
it is foolish, and it is foolish whenever 
it attempts to raise wages above that 
market rate which is rendered possible 
by the demand and supply. But de¬ 
mand and supply are not physical 
agencies, which thrust a given amount 
of wages into a labourer’s hand without 
the participation of his own will and 
actions. The market rate is not fixed 
for him by some self-acting instrument, 
but is the result of bargaining between 
human beings—of what Adam Smith 
calls “the higgling of the market;’* 
and those who do not “ higgle” will 
long continue to pay, even over a coun¬ 
ter, more than the market price for 
their purchases. Still more might poor 
labourers who have to do with rich 
employers, remain long without the 
amount of wages which the demand 
for their labour would justify, unless, 
in vernacular phrase, they stood out for 
it: and how can they stand out for 
terms without organized concert? What 
chance would any labourer have, who 
struck singly for an advance of wages ? 
How could he even know whether the 
state of the market admitted of a rise, 
except by consultation with his fellows, 
naturally leading to concerted action ? 
I do not hesitate to say that associa¬ 
tions of labourers, of a nature similar 
to trades unions, far from being a hin¬ 
drance to a free market for labour, are 
the necessary instrumentality of that 
free market; the indispensable means 
of enabling the sellers of labour to 
take due care of their own interests 
under a system of competition. There 
is an ulterior consideration of much 
importance, to which attention was for 
the first time drawn by Professor Faw¬ 
cett, in an article in the Westminster 
Review. Experience has ot length 
enabled the more intelligent trades to 
take a tolerably correct measure of tho 
circumstances on which the success of 
a strike for an advance of wages de- 






566 BOOK V. CHAPTER X. § 6. 


pends. The workmen are now nearly 
as well informed as the master, of the 
state of the market for his commodi¬ 
ties ; they can calculate his gains and 
his expenses, they know when his trade 
is or is not prosperous, and only when 
it is, are they ever again likely to strike 
for higher wages; which wages their 
known readiness to strike makes their 
employers for the most part willing, in 
that case, to concede. The tendency, 
therefore, of this state of things is to 
make a rise of wages, in any particular 
trade, usually consequent upon a rise 
of profits, which, as Mr. Fawcett ob¬ 
serves, is a commencement of that 
regular participation of the labourers 
in the profits derived from their labour, 
every tendency to which, for the rea¬ 
sons stated in a previous chapter,* it 
is so important to encourage, since to 
it we have chiefly to look for any radi¬ 
cal improvement in the social and eco¬ 
nomical relations between labour and 
capital. Strikes, therefore, and the 
trade societies which render strikes 
possible, are for these various reasons 
not a mischievous, but on the contrary, 
a valuable part of the existing ma¬ 
chinery of society. 

It is, however, an indispensable con¬ 
dition of tolerating combinations, that 
they should be voluntary. No severity, 
necessary to the purpose, is too great 
to be employed against attempts to 
compel workmen to join a union, or 
take part in a strike, by threats or 
violence. Mere moral compulsion, by 
the expression of opinion, the law 
ought not to interfere with ; it belongs 
to more enlightened opinion to restrain 
it, by rectifying the moral sentiments 
of the people. Other questions arise 
whentlie combination, being voluntary, 
proposes to itself objects really con¬ 
trary to the public good. High wages 
and short hours are generally good ob¬ 
jects, or, at all events, may be so: but 
in many trades unions, it is among the 
rules that there shall be no task work, 
or no difference of pay between the 
most expert workmen and the most un¬ 
skilful, or that no member of the union 
shall earn more than a certain sum per 
week, in order that there may be more 
* Supra, book v. chap. vii. 


employment for the rest: and the abo¬ 
lition of piece work, under more or less 
of modification, held a conspicuous 
place among the demands of the Amal¬ 
gamated Society. These are combina¬ 
tions to effect objects which are perni¬ 
cious. Their success, even when only 
partial, is a public mischief; and were 
it complete, would be equal in magni¬ 
tude to almost any of the evils aris¬ 
ing from bad economical legislation. 
Hardly anything worse can be said of 
the worst laws on the subject of in¬ 
dustry and its remuneration, consistent 
with the personal freedom of the la¬ 
bourer, than that they place the ener¬ 
getic and the idle, the skilful and the 
incompetent, on a level: and this, in 
so far as it is in itself possible, it is 
the direct tendency of the regulations 
of these unions to do. It does not, 
however, follow as a consequence that 
the law would be warranted in making 
the formation of such associations il¬ 
legal and punishable. Independently 
of all considerations of constitutional 
liberty, the best interests of the hu¬ 
man race imperatively require that 
all economical experiments, voluntarily 
undertaken, should have the fullest 
license, and that force and fraud should 
be the only means of attempting to 
benefit themselves, which are inter¬ 
dicted to the less fortunate classes of 
the community.f 

§ 6. Among the modes of undue 
exercise of the power of government, 
on which I have commented in this 

f Whoever desires to understand the ques¬ 
tion of Trade Combinations as seen from the 
point of view of the working people, should 
make himself acquainted with a pamphlet 
published in 1860, under the title “Trades 
Unions and Strikes, their Philosophy and 
Intention, by T. J. Dunning, Secretary to 
the London Consolidated Society of Book¬ 
binders.” There are many opinions in this 
able tract in which I only partially, and some 
in which I do not at all, coincide. But there 
are also many sound arguments, and an in¬ 
structive exposure of the common fallacies 
of opponents. Beaders of other classes will 
see with surprise, not only how great a por¬ 
tion of truth the Unions have on their side, 
but how much less flagrant and condemnable 
even their errors appear, when seen under 
the aspect in which it is only natural that 
the working classes should themselves regard 
them. 



LIMITS OF THE PROVINCE OF GOVERNMENT. 567 


chapter, I have included only such as 
rest on theories which have still more 
or less of footing in the most en¬ 
lightened countries. I have not spoken 
of some which have done still greater 
mischief in times not long past, but 
which are now generally given up, at 
least in theory, though enough of them 
still remains in practice to make it im¬ 
possible as yet to class them among 
exploded errors. 

The notion, for example, that a go¬ 
vernment should choose opinions for 
the people, and should not suffer any 
doctrines in politics, morals, law, or 
religion, but such as it approves, to be 
printed or publicly professed, may be 
said to be altogether abandoned as a 
general thesis. It is now well under¬ 
stood that a regime of this sort is fatal 
to all prosperity, even of an econo¬ 
mical kind: that the human mind, 
when prevented either by fear of the 
law or by fear of opinion from exer¬ 
cising its faculties freely on the most 
important subjects, acquires a general 
torpidity and imbecility, by which, 
when they reach a certain point, it is 
disqualified from making any consi¬ 
derable advances even in the common 
affairs of life, and which, when greater 
still, make it gradually lose even its 
previous attainments. There cannot 
be a more decisive example than Spain 
and Portugal, for two centuries after 
the Reformation. The decline of those 
countries in national greatness, and 
even in material civilization, while al¬ 
most all the other nations of Europe 


were uninterruptedly advancing, has 
been ascribed to various causes, but 
there is one which lies at the founda¬ 
tion of them all: the Holy Inquisi¬ 
tion, and the system of mental slavery 
of which it is the symbol. 

Yet although these truths are very 
widely recognised, and freedom both of 
opinion and of discussion is admitted 
as an axiom in all free countries, this 
apparent liberality and tolerance has 
acquired so little of the authority of a 
principle, that it is always ready to 
give way to the dread or horror in¬ 
spired by some particular sort of 
opinions. Within the last ten or 
fifteen years several individuals have 
suffered imprisonment, for the public 
profession, sometimes in a very tem¬ 
perate manner, of disbelief in religion ; 
and it is probable that both the public 
and the government, at the first panic 
which arises on the subject of Chartism 
or Communism, will fly to similar 
means for checking the propagation of 
democratic or anti-property doctrines. 
In this country, however, the effective 
restraints on mental freedom proceed 
much less from the law or the govern¬ 
ment, than from the intolerant temper 
of the national mind; arising no longer 
from even as respectable a source as 
bigotry or fanaticism, but rather from 
the general habit, both in opinion and 
conduct, of making adherence to cus¬ 
tom the rule of life, and enf ro’ng it, 
by social penalties, against an persons 
who, without a party to back them, 
assert their individual independence. 


CHAPTER XI. 


THE GROUNDS AND LIMITS OF THE LAISSER-FA1RE OR 
NON-INTERFERENCE PRINCIPLE. 


§ 1. We have now reached the last 
part of our undertaking; the discus¬ 
sion, so far as suited to this treatise 
(that is, so far as it is a question of 
principle, not detail) of the limits of 
the province of government; the ques¬ 


tion, to what objects governmental 
intervention in the affairs of society 
may or should extend, over and above 
those which necessarily appertain to 
it. No subject has been more keenly 
contested in the present age : the con- 





BOOK y. CHAPTER XI. § 2. 


568 

test, however, has chiefly taken place 
round certain select points, with only 
flying excursions into the rest of the 
field. Those indeed who have dis¬ 
cussed any particular question of go¬ 
vernment interference, such as state 
education (spiritual or secular), regu¬ 
lation of hours of labour, a public pro¬ 
vision for the poor, &c., have often 
dealt largely in general arguments, far 
outstretching the special application 
made of them, and have shown a suffi¬ 
ciently strong bias either in favour of 
letting things alone, or in favour of 
meddling; but have seldom declared, 
or apparently decided in their own 
minds, how far they would carry either 
principle. The supporters of inter¬ 
ference have been content with assert¬ 
ing a general right and duty on the 
part of government to intervene, wher¬ 
ever its intervention would he useful: 
and when those who have been called 
the laisser-faire school have attempted 
any definite limitation of the province 
of government, they have usually re¬ 
stricted it to the protection of person 
and property against force and fraud ; 
a definition to which neither they nor 
any one else can deliberately adhere, 
since it excludes, as has been shown 
in a preceding chapter,* some of the 
most indispensable, and unanimously 
recognised, of the duties of govern¬ 
ment. 

y ithout professing entirely to sup¬ 
ply this deficiency of a general theory, 
on a question which does not, as I 
conceive, admit of any universal solu¬ 
tion, I. shall attempt to afford some 
little aid towards the resolution of this 
class of questions as they arise, by 
examining, in the most general point 
of view in which the subject can be 
considered, what are the advantages, 
and what the evils or inconveniences, 
of government interference. 

A e must sot out by distinguishing 
between two kinds of intervention by 
the government, which, though they 
may relate to the same subject, differ 
widely in their nature and effects, and 
require, for their justification, motives 
of a very different degree of urgency. 

'i he intervention may extend to con- 
* Supra, book v. ch. i. 


trolling the free agency of individuals'. 
Government may interdict all persons 
from doing certain things ; or from 
doing them without its authorization ; 
or may prescribe to them certain things 
to be done, or a certain manner of 
doing things which it is left optional 
with them to do or to abstain from, 
d his is the authoritative interference 
of government. There is another kind 
of intervention which is not authori¬ 
tative : when a government, instead 
oi issuing a command and enforcing it 
by penalties, adopts the course so 
seldom resorted to by governments, 
and of which such important use might 
be made, that of giving advice, and 
promulgating information; or when, 
leaving individuals free to use their 
own means of pursuing any object of 
general interest, the government, not 
meddling with them, but not trusting 
the object solely to their care, est<£ 
blishes, side by side with their ar¬ 
rangements, an agency of its own for 
a like purpose. Thus, it is one thing 
to maintain a Church Establishment, 
and another to refuse toleration to 
other religions, or to persons professing 
no religion. It is one thing to provide 
schools or colleges, and another to re¬ 
quire that no person shall act as an 
instructor of youth without a govern¬ 
ment license. There might be a na¬ 
tional bank, or a government manu-. 
factory, without any monopoly against 
pm ate banks and manufactories. 
There might be a post-office, without 
penalties against the conveyance of let¬ 
ters by other means. There may be a 
corps of government engineers for 
civil purposes, while the profession of 
a civil engineer is free to be adopted 
by every one. There may be public 
hospitals, without any restriction upon 
private medical or surgical practice. 

§2. It is evident, even at first 
sight, that the authoritative form of 
government intervention has a much 
more limited sphere of legitimate ac¬ 
tion than the other. It requires a- 
much stronger necessity to justify it 
in any case ; while there are large 
departments of human life from which 
it must be unreservedly and imperi- 







LIMITS OF THE PROVINCE OF GOVERNMENT. 


ously excluded. Whatever theory we 
adopt respecting the foundation of the 
social union, and under whatever po¬ 
litical institutions we live, there is a 
circle around every individual human 
being, which no government, be it that 
of one, of a few, or of the many, ought 
to be permitted to overstep : there is a 
part of the life of every person who 
has come to years of discretion, within 
which the individuality of that person 
ought to reign uncontrolled either by 
any other individual or by the public 
collectively. That there is, or ought 
to be, some space in human existence 
thus entrenched around, and sacred 
from authoritative intrusion, no one who 
professes the smallest regard to human 
freedom or dignity will call in question: 
the point to be determined is, where 
the limit should be placed ; how large 
a province of human life this reserved 
territory should include. I apprehend 
that it ought to include all that part 
which concerns only the life, whether 
inward or outward, of the individual, 
and does not affect the interests of 
others, or affects them only through 
the moral influence of example. With 
respect to the domain of the inward 
consciousness, the thoughts and feel¬ 
ings, and as much of external conduct 
as is personal only, involving no con¬ 
sequences, none at least of a painful or 
injurious kind, to other people ; I hold 
that it is allowable in all, and in the 
more thoughtful and cultivated often a 
duty, to assert and promulgate, with 
all the force they are capable of, their 
opinion of what is good or bad, admi¬ 
rable or contemptible, but not to com¬ 
pel others to conform to that opinion ; 
whether the force used is that of extra- 
legal coercion, or exerts itself by means 
of the law. 

Even in those portions of conduct 
which do affect the interest of others, 
the onus of making out a case always 
lies on the defenders of legal prohi¬ 
bitions. It is not a merely constructive 
or presumptive injury to others, which 
will justify the interference of law with 
individual freedom. To be prevented 
from doing what one is inclined to, or 
from acting according to one’s own 
judgment of what is desirable, is not 


56 $ 

only always irksome, but always tends, 
pro tcinto, to starve the development 
of some portion of the bodily or mental 
faculties, either sensitive or active; 
and unless the conscience of the indi¬ 
vidual goes freely with the legal re¬ 
straint, it partakes, either in a great 
or in a small degree, of the degrada¬ 
tion of slavery. Scarcely any degree 
of utility, short of absolute necessity, 
will justify a prohibitory regulation, 
unless it can also be made to recom¬ 
mend itself to the general conscience ; 
unless persons of ordinary good inten¬ 
tions either believe already, or can be 
induced to believe, that the thing pro¬ 
hibited is a thing which they ought 
not to wish to do. 

It is otherwise with governmental 
interferences which do not restrain in¬ 
dividual free agency. When a govern¬ 
ment provides means for fulfilling a 
certain end, leaving individuals free to 
avail themselves of different means if 
in their opinion preferable, there is no 
infringement of liberty, no irksome or 
degrading restraint. One of the prin¬ 
cipal objections to government inter¬ 
ference is then absent. There is, how¬ 
ever, in almost all forms of government 
agency, one thing which is compulsory; 
the provision of the pecuniary means. 
These are derived from taxation; or, 
if existing in the form of an endow¬ 
ment derived from public property, 
they are still the cause of as much 
compulsory taxation as the sale or the 
annual proceeds of the property would 
enable to be dispensed with.* And 
the objection necessarily attaching to 
compulsory contributions, is almost al¬ 
ways greatly aggravated by the ex¬ 
pensive precautions and onerous re¬ 
strictions, which are indispensable to 
prevent evasion of a compulsory tax. 

* The only cases in which government 
agency involves nothing of a compulsory 
nature, are the rare cases in which, without 
any artificial monopoly, it pays its own ex¬ 
penses. A bridge built with public money, 
on which tolls are collected, sufficient to pay 
not only all current expenses, but the inte¬ 
rest of the original outlay, is one case in 
point. The government railways in Belgium, 
and Germany are another example. The 
Post Office, if its monopoly were abolished, 
and it still paid its expenses, would be 
another. 




<570 BOOK V. CHAPTER XI. §§ 3, 4. 


§ 3. A second general objection to 
government agency, is that every in¬ 
crease of the functions devolving on 
the government is an increase of its 
power, both in the form of authority, 
and still more, in the indirect form of 
influence. The importance of this con¬ 
sideration, in respect to political free¬ 
dom, has in general been quite suffi¬ 
ciently recognised, at least in Eng¬ 
land ; but many, in latter times, have 
been prone to think that limitation of 
the powers of the government is only 
essential when the government itself 
is badly constituted; when it does not 
represent the people, but is the organ 
of a class, or coalition of classes : and 
that a government of sufficiently popu¬ 
lar constitution might be trusted with 
any amount of power over the nation, 
since its power would be only that of 
the nation over itself. This might be 
true, if the nation, in such cases, did 
not practically mean a mere majority 
of the nation, and if minorities were 
only capable of oppressing, but not of 
being oppressed. Experience, however, 
proves that the depositaries of power 
who are mere delegates of the people, 
that is of a majority, are quite as 
ready (when they think they can count 
on popular support) as any organs of 
oligarchy, to assume arbitrary power, 
and encroach unduly on the liberty of 
private life. The public collectively is 
abundantly ready to impose, not only 
its generally narrow views of its inte¬ 
rests, but its abstract opinions, and 
even its tastes, as laws binding upon 
individuals. And the present civiliza¬ 
tion tends so strongly to make the 
power of persons acting in masses the 
only substantial power in society, that 
there never was more necessity for 
surrounding individual independence 
of thought, speech, and conduct, with 
the most powerful defences, in order to 
maintain that originality of mind and 
individuality of character, which are 
the only source of any real progress, 
and of most of the qualities which 
make the human race much superior 
to any herd of animals. Hence it is 
no less important in a democratic than 
in any other government, that all ten¬ 
dency on the part of public authorities 


to stretch their interference, and as¬ 
sume a power of any sort which can 
easily be dispensed with, should be re¬ 
garded with unremitting jealousy. 
Perhaps this is even more important 
in a democracy than in any other form 
of political society; because, where 
public opinion is sovereign, an indi¬ 
vidual who is oppressed by the sove¬ 
reign does not, as in most other states 
of things, find a rival power to which 
he can appeal for relief, or, at all events, 
for sympathy. 

§ 4. A third general objection to 
government agency, rests on the prin¬ 
ciple of the division of labour. Every 
additional function undertaken by the 
government, is a fresh occupation im¬ 
posed upon a body already overcharged 
with duties. A natural consequence 
is that most things are ill done; much 
not done at all, because the govern¬ 
ment is not able to do it without 
delays which are fatal to its purpose ; 
that the more troublesome, and less 
showy, of the functions undertaken, 
are postponed or neglected, and an ex¬ 
cuse is always ready for the neglect; 
while the heads of the administration 
have their minds so fully taken up with 
official details, in however perfunctory 
a manner superintended, that they 
have no time or thought to spare for 
the great interests of the state, and the 
preparation of enlarged measures of 
social improvement. 

But these inconveniences, though 
real and serious, result much more 
from the bad organization of govern¬ 
ments, than from the extent and va¬ 
riety of the duties undertaken by them. 
Government is not a name for some 
one functionary, or definite number of 
functionaries: there may be almost 
any amount of division of labour within 
the administrative body itself. The 
evil in question is felt in great magni¬ 
tude under some of the governments of 
the Continent, where six or eight men, 
living at the capital and known by the 
name of ministers, demand that the 
whole public business of the country 
shall pass, or be supposed to pass, 
under their individual eye. But the 
inconvenience would be reduced to a 



LIMITS OF THE PROVINCE OF GOVERNMENT. 


very manageable compass, in a country 
in which there was a proper distri¬ 
bution of functions between the central 
and local officers of government, and 
in which the central body was divided 
into a sufficient number of departments. 
When Parliament thought it expedient 
to confer on the government an in¬ 
specting and partially controlling au¬ 
thority over railways, it did not add 
railways to the department of the 
Home Minister, but created a Railway 
Hoard. When it determined to have a 
central superintending authority for 
pauper administration, it established 
the Poor Law Commission. There are 
few countries in.which a greater num¬ 
ber of functions are discharged by pub¬ 
lic officers, than in some states of the 
American Union, particularly the New 
England States: but the division of 
labour in public business is extreme ; 
most of these officers being not even 
amenable to any common superior, but 
performing their duties freely, under 
the double check of election by their 
townsmen, and civil as well as criminal 
responsibility to the tribunals. 

It is, no doubt, indispensable to good 
government that the chiefs of the ad¬ 
ministration, whether permanent or 
temporary, should extend a command¬ 
ing, though general, view over the 
aggregate of all the interests confided, 
in any degree, to the responsibility of 
the central power. But with a skilful 
internal organization of the adminis¬ 
trative machine, leaving to subordi¬ 
nates, and as far as possible to local 
subordinates, not only the execution, 
but to a great degree the control, of 
details ; holding them accountable for 
the results of their acts rather than for 
the acts themselves, except where these 
come within the cognizance of the tri¬ 
bunals ; taking the most effectual secu¬ 
rities for honest and capable appoint¬ 
ments ; opening a broad path to 
promotion from the inferior degrees of 
the administrative scale to the supe¬ 
rior ; leaving, at each step, to the func¬ 
tionary, a wider range in the origina¬ 
tion of measures, so that, in the highest 
grade of all, deliberation might be con¬ 
centrated on the great collective inte¬ 
rests of the country in each depart- 


571 

ment; if all this were done, the 
government would not probably be 
overburthened by any business, in other 
respects fit to be undertaken by it; 
though the overburthening would re¬ 
main as a serious addition to the in¬ 
conveniences incurred by its under¬ 
taking any which was unfit. 

§ 5. But though a better organiza¬ 
tion of governments would greatly 
diminish the force of the objection to 
the mere multiplication of their duties, 
it would still remain true that in all the 
more advanced communities, the great 
majority of things are worse done by 
the intervention of government, than 
the individuals most interested in the 
matter would do them, or cause them 
to be done, if left to themselves. The 
grounds of this truth are expressed 
with tolerable exactness in the popular 
dictum, that people understand their 
own business and their own interests 
better, and care for them more, than 
the government does, or can be ex¬ 
pected to do. This maxim holds true 
throughout the greatest part of the 
business of life, and wherever it is true 
we ought to condemn every kind of 
government intervention that conflicts 
with it. The inferiority of government 
agency, for example, in any of the 
common operations of industry or com¬ 
merce, is proved by the fact, that it is 
hardly ever able to maintain itself 
in equal competition with individual 
agency, where the individuals possess 
the requisite degree of industrial enter¬ 
prise, and can command the necessary 
assemblage of means. All the facili¬ 
ties which a government enjoys of 
access to information ; all the means 
which it possesses of remunerating, 
and therefore of commanding, the best 
available talent in the market—are 
not an equivalent for the one great 
disadvantage of an inferior interest in 
the result. 

It must be remembered, besides, 
that even if a government were supe¬ 
rior in intelligence and knowledge to 
any single individual in the nation, it 
must be inferior to all the individuals 
of the nation taken together. It can 
neither possess in itself, nor enlist in 




BOOK Y. CHAPTER XI. § 6. 


572 

its service, more than a portion of the 
acquirements and capacities which the 
country contains, applicable to any 
given purpose. There must he many 
persons equally qualified for the work 
with those whom the government em¬ 
ploys, even if it selects its instruments 
with no reference to any consideration 
hut their fitness. Now these are the 
very persons into whose hands, in the 
cases of most common occurrence, a 
system of individual agency naturally 
tends to throw the work, because they 
are capable of doing it better or on 
cheaper terms than any other persons. 
So far as this is the case, it is evident 
that government, by excluding or even 
by superseding individual agency, 
either substitutes a less qualified in¬ 
strumentality for one better qualified, 
or at any rate substitutes its own mode 
of accomplishing the work, for all the 
variety of modes which would be tried 
by a number of equally qualified per¬ 
sons aiming at the same end; a com¬ 
petition by many degrees more pro¬ 
pitious to the progress of improvement, 
than any uniformity of system. 

§ 6. I have reserved for the last 
place one of the strongest of the 
reasons against the extension of go¬ 
vernment agency. Even if the govern¬ 
ment could comprehend within itself, 
in each department, all the most emi¬ 
nent intellectual capacity and active 
talent of the nation, it would not be 
the less desirable that the conduct of a 
large portion of the affairs of society 
should be left in the hands of the 
persons immediately interested in them. 
The business of life is an essential part 
of the practical education of a people; 
without which, book and school in¬ 
struction, though most necessary and 
salutary, does not suffice to qualify 
them for conduct, and for the adapta¬ 
tion of means to ends. Instruction is 
only one of the desiderata of mental 
improvement; another, almost as in¬ 
dispensable, is a vigorous exercise of 
the active energies; labour, contriv¬ 
ance, judgment, self-control: and the 
natural stimulus to these is the diffi¬ 
culties of life. This doctrine is not to 
bo confounded with the complacent 


l optimism, which represents the evils 
of life as desirable things, because they 
j call forth qualities adapted to combat 
with evils. It is only because the dif¬ 
ficulties exist, that the qualities which 
combat with them are of any value. 
As practical beings it is our business 
to free human life from as many as 
possible of its difficulties, and not to 
keep up a stock of them as hunters 
! preserve game, for the exercise of pur¬ 
suing it. But since the need of active 
talent and practical judgment in the 
I affairs of life can only be diminished, 
and not, even on the most favourable 
supposition, done away with, it is im¬ 
portant that those endowments should 
be cultivated not merely in a select 
few, but in all, and that the cultivation 
should be more varied and complete 
than most persons are able to find in 
the narrow sphere of their merely indi¬ 
vidual interests. A people among 
whom there is no habit of spontaneous 
action for a collective interest—who 
look habitually to their government to 
command or prompt them in all matters 
of joint concern—who expect to have 
everything done for them, except what 
can be made an affair of mere habit 
and routine—have their faculties only 
half developed; their education is de¬ 
fective in one of its most important 
branches. 

Not only is the cultivation of the 
active faculties by exercise, diffused 
through the whole community, in itself 
one of the most valuable of national 
possessions: it is rendered, not less, 
but more, necessary, when a high de¬ 
gree of that indispensable culture is 
systematically kept up in the chiefs 
and functionaries of the state. There 
cannot be a combination of circum¬ 
stances more dangerous to human wel¬ 
fare, than that in which intelligence 
and talent are maintained at a high 
standard within a governing corpora¬ 
tion, but starved and discouraged out¬ 
side the pale. Such a system, more 
completely than any other, embodies 
the idea of despotism, by arming with 
intellectual superiority as an additional 
weapon, those who have already the 
legal power. It approaches as nearly 
as the organic difference between 





LIMITS OF THE PROVINCE OF GOVERNMENT. 573 


human beings and other animals ad¬ 
mits, to the government of sheep by 
their shepherd, without anything like 
so strong an interest as the shepherd 
has in the thriving condition of the 
flock. The only security against poli¬ 
tical slavery, is the check maintained 
over governors, by the diffusion of in¬ 
telligence, activity, and public spirit 
among the governed. Experience 
proves the extreme difficulty of per¬ 
manently keeping up a sufficiently high 
standard of those qualities; a difficulty 
which increases, as the advance of 
civilization and security removes one 
after another of the hardships, embar¬ 
rassments, and dangers against which 
individuals had formerly no resource 
but in their own strength, skill, and 
courage. It is therefore of supreme 
importance that all classes of the com¬ 
munity, down to the lowest, should 
have much to do for themselves ; that 
as great a demand should be made 
upon their intelligence and virtue as it 
is in any respect equal to; that the 
government should not only leave as 
far as possible to their own faculties 
the conduct of whatever concerns 
themselves alone, but should suffer 
them, or rather encourage them, to 
manage as many as possible of their 
joint concerns by voluntary co-opera¬ 
tion: since this discussion and manage¬ 
ment of collective interests is the great 
school of that public spirit, and the 
great source of that intelligence of 
public affairs, which are always re¬ 
garded as the distinctive character of 
the public of free countries. 

A democratic constitution, not sup¬ 
ported by democratic institutions in de¬ 
tail, but confined to the central govern¬ 
ment, not only is not political freedom, 
but often creates a -spirit precisely the 
reverse, carrying down to the lowest 
grade in society the desire and ambi¬ 
tion of political domination. In some 
countries the desire of the people is 
for not being tyrannized over, but in 
others it is merely for an equal chance 
to everybody of tyrannizing. Unhap¬ 
pily this last state of the desires is 
fully as natural to mankind as the 
former, and in many of the conditions 
even of civilized humanity, is far more 


largely exemplified. In proportion as 
the people are accustomed to manage 
their affairs by their own active inter¬ 
vention, instead of leaving them to the 
government, their desires will turn to 
repelling tyranny, rather than to tyran¬ 
nizing : while in proportion as all real 
initiative and direction resides in the 
government, and individuals habitually 
feel and act as under its perpetual 
tutelage, popular institutions developc 
in them not the desire of freedom, but 
an unmeasured appetite for place and 
power; diverting the intelligence and 
activity of the country from its prin¬ 
cipal business, to a wretched competi¬ 
tion for the selfish prizes and the petty 
vanities of office. 

§ 7. The preceding are the prin¬ 
cipal reasons, of a general character, 
in favour of restricting to the narrowest 
compass the intervention of a public 
authority in the business of the com¬ 
munity : and few will dispute the more 
than sufficiency of these reasons, to 
throw, in every instance, the burthen of 
making out a strong case, not on those 
who resist, but on those who recom¬ 
mend, government interference. Let¬ 
ting alone, in short, should be the 
general practice : every departure from 
it, unless required by some great good, 
is a certain evil. 

The degree in which the maxim, 
even in the cases to which it is most 
manifestly applicable, has heretofore 
been infringed by governments, future 
ages will probably have difficulty in 
crediting. Some idea may be formed 
of it from the description by M. 
Dunoyer* of the restraints imposed on 
the operations of manufacture under 
the old government of France, by the 
meddling and regulating spirit of legis¬ 
lation. 

“ The State exercised over manufac¬ 
turing industry the most unlimited and 
arbitrary jurisdiction. It disposed 
without scruple of the resources of 
manufacturers: it decided who should 
be allowed to work, what things it 
should be permitted to make, what ma¬ 
terials should be employed, what pro- 

* On the Liberty of Labour , voi. li. 
pp. 353-4, 



574 


BOOK y. CHAPTER XI. § 7. 


cesses followed, what forms should he 
given to productions. It was not 
enough to do well, to do better; it was 
necessary to do according to the rules. 
Everybody knows the regulation of 
1670 which prescribed to seize and 
nail to the pillory, with the names of 
the makers, goods not conformable to 
the rules, and which, on a second repe¬ 
tition of the offence, directed that the 
manufacturers themselves should be 
* attached also. Not the taste of the 
consumers, but the commands of the 
law must be attended to. Legions of 
inspectors, commissioners, controllers, 
jurymen, guardians, were charged with 
its execution. Machines -were broken, 
products were burned when not con¬ 
formable to the rules: improvements 
were punished; inventors were fined. 
There were different sets of rules for 
goods destined for home consumption 
and for those intended for exportation. 
An artizan could neither choose the 
place in which to establish himself, nor 
work at all seasons, nor work for all 
customers. There exists a decree of 
March 30, 1700, which limits to 

eighteen towns the number of places 
where stockings might be woven. A 
decree of June 18, 1723, enjoins the 
manufacturers at Rouen to suspend 
their works from the 1st of July to 
the 15th of September, in order to fa¬ 
cilitate, the harvest. Louis XIV., when 
he intended to construct the colonnade 
of the Louvre, forbade all private per¬ 
sons to employ workmen without his 
permission, under a penalty of 10,000 
livres, and forbade workmen to work 
for private persons, on pain for the first 
offence, of imprisonment, and for the 
second, of the galleys.” 

That these and similar regulations 
were not a dead letter, and that the 
officious and vexatious meddling was 
prolonged down to the French Revo¬ 
lution, we have the testimony of 
Roland, the Girondist minister.* “ I 
have seen,” says he, “eighty, ninety, 
a hundred pieces of cotton or woollen 
stuff cut up, and Completely destroyed. 
I have witnessed similar scenes every 
week for a number of years. I have 

* I quote at second hand, from Mr. Carey’s 
Essay on the Hate of Wages , pp. 195-6. 


seen manufactured goods confiscated ; 
heavy fines laid on the manufacturers; 
some pieces of fabric were burnt in 
public places, and at the hours of 
market: others were fixed to the pil¬ 
lory, with the name of the manufac¬ 
turer inscribed upon them, and he him¬ 
self was threatened with the pillory, in 
case of a second offence. All this was 
done under my eyes, at Rouen, in con¬ 
formity with existing regulations, or 
ministerial orders. What crime de¬ 
served so cruel a punishment ? Some 
defects in the materials employed, or 
in the texture of the fabric, or even in 
some of the threads of the warp. 

“ I have frequently seen manufac¬ 
turers visited by a band of satellites 
who put all in confusion in their esta¬ 
blishments, spread terror in their fami¬ 
lies, cut the stuffs from the frames, tore 
off the warp from the looms, and car¬ 
ried them away as proofs of infringe¬ 
ment ; the manufacturers were sum¬ 
moned, tried, and condemned: their 
goods confiscated ; copies of their judg¬ 
ment of confiscation posted up in every 
public place; fortune, reputation, credit, 
all was lost and destroyed. And for 
what offence ? Because they had made 
of worsted, a kind of cloth called shag, 
such as the English used to manufac¬ 
ture, and even sell in France, while the 
French regulations stated that that 
kind of cloth should be made with mo¬ 
hair. I have seen other manufacturers 
treated in the same way, because they 
had made camlets of a particular 
width, used in England and Germany, 
for which there was a great demand 
from Spain, Portugal, and other coun¬ 
tries, and from several parts of France, 
while the French regulations prescribed 
other widths for camlets.” 

The time is gone by, when such ap¬ 
plications as these of the principle of 
“paternal government” would be at¬ 
tempted, in even the least enlightened 
country of the European common¬ 
wealth of nations. In such cases as 
those cited, all the general objections 
to government interference are valid, 
and several of them in nearly their 
highest degree. But we must now 
turn to the second part of our task, 
and direct our attention to cases, in 





LIMITS OF THE PROVINCE OF GOVERNMENT. 575 


■which some of those general objections 
are altogether absent, while those which 
can never be got rid of entirely, are 
overruled by counter-considerations of 
still greater importance. 

We have observed that, as a general 
rule, the business of life is better per¬ 
formed when those who have an imme¬ 
diate interest in it are left to take their 
own course, uncontrolled either by the 
mandate of the law or by the meddling 
of any public functionary. The per¬ 
sons, or some of the persons, who do 
the work, are likely to be better judges 
than the government, of the means of 
attaining the particular end at which 
they aim. Were we to suppose, what 
is not very probable, that the govern¬ 
ment has possessed itself of the best 
knowledge which had been acquired up 
to a given time by the persons most 
skilled in the occupation ; even then, 
the individual agents have so much 
stronger and more direct an interest in 
the result, that the means are far more 
likely to be improved and perfected if 
left to their uncontrolled choice. But 
if the workman is generally the best 
selector of means, can it be affirmed 
with the same universality, that the 
consumer, or person served, is the most 
competent judge of the end ? Is the 
buyer always qualified to judge of the 
commodity? If not, the presumption 
in favour of the competition of the 
market does not apply to the case; 
and if the commodity be one, in the 
quality of ■which society has much at 
stake, the balance of advantages may 
be in favour of some mode and degree 
of intervention, by the authorized re- 
presentatives of the collective interest 
of the state. 

§ 8. Now r , the proposition that the 
consumer is a competent judge of the 
commodity, can be admitted only with 
numerous abatements and exceptions. 
He is generally the best judge (though 
even this is not true universally) of the 
material objects produced for his use. 
These are destined to supply some 
physical want, or gratify some taste or 
inclination, respecting which wants or 
inclinations there is no appeal from the 
person who feels them; or they are the 


means and appliances of some occupa¬ 
tion, for the use of the persons engaged 
in it, who may be presumed to be 
judges of the things required in their 
own habitual employment. But there 
are other things of the worth of which 
the demand of the market is by no 
means a test; things of which the 
utility does not consist in ministering 
to inclinations, nor in serving the daily 
uses of life, and the want of which is 
least felt where the need is greatest. 
This is peculiarly true of those things 
which are chietlv useful as tending to 
raise the character of human beings. 
The uncultivated cannot be competent 
judges of cultivation. Those who most 
need to be made wiser and better, 
usually desire it least, and if they de¬ 
sired it, would be incapable of finding 
the way to it by their own lights. It 
-will continually happen, on the volun¬ 
tary system, that, the end not being 
desired, the means will not be provided 
at all, or that, the persons requiring 
improvement having an imperfect or 
altogether erroneous conception of what 
they want, the supply called forth by 
the demand of the market will be any¬ 
thing but what is really required. Now 
any well-intentioned and tolerably 
civilized government may think with¬ 
out presumption that it does or ought 
to possess a degree of cultivation above 
the average of the community which 
it rules, and that it should therefore be 
capable of offering better education 
and better instruction to the people, 
than the greater number of them would 
spontaneously demand. Education, 
therefore, is one of those things which 
it is admissible in principle that a 
government should provide for the 
people. The case is one to which the 
reasons of the non-interference prin¬ 
ciple do not necessarily or universally 
extend.* 

* In opposition to these opinions, a 
writer, with whom on many points I agree, 
but whose hostility to government interven¬ 
tion seems to me too indiscriminate and 
unqualified, M. Dunoyer, observes, that 
instruction, however good in itself, can only 
be useful to the public in so far as they are 
willing to receive it, and that the best proof 
that the instruction is suitable to their 
wants, is its success as a pecuniary enter¬ 
prise. This argument seems no more con- 




BOOK V. CHAPTER XI. § 8. 


576 

With regard to elementary educa¬ 
tion, the exception to ordinary rules 
may, I conceive, justifiably be carried 
still further. There are certain primary 
elements and means of knowledge, 
which it is in the highest degree de¬ 
sirable that all human beings born into 
the community should acquire during 
childhood. If their parents, or those 
on whom they depend, have the power 
of obtaining for them this instruction, 
and fail to do it, they commit a double 
"breach of duty: towards the children 
themselves, and towards the members 
of the community generally, who are 
all liable to sutler seriously from the 
consequences of ignorance and want of 
education in their fellow-citizens. It 
is therefore an allowable exercise of the 
powers of government, to impose on 
parents the legal obligation of giving 
elementary instruction to children. This 

elusive respecting instruction for the mind, 
than it would be respecting medicine for the 
body. No medicine will do the patient any 
good if he cannot be induced to take it; but 
we are not bound to admit as a corollary 
from this, that the patient will select the 
right medicine without assistance. Is it not 
probable that a recommendation, from any 
quarter which he respects, may induce him 
to accept a better medicine than he would 
spontaneously have chosen ? This is, in 
respect to education, the very point in de¬ 
bate. Without doubt, instruction which is 
bo far in advance of the people that they 
cannot be induced to avail themselves of it, 
is to them of no more worth than if it did not 
exist. But between what they spontane¬ 
ously choose, and what they will refuse to 
accept when offered, there is a breadth of 
interval proportioned to their deference for 
the recommender. Besides, a thing of which 
the public are bad judges, may require to be 
shown to them and pressed on their attention 
for a long time, and to prove its advantages 
by long experience, before they learn to 
appreciate it, yet they may learn at last; 
which they might never have done, if the 
thing had not been thus obtruded upon them 
in act, but only recommended in theory. 
Now, a pecuniary speculation cannot wait 
years, or perhaps generations, for success; 
it must succeed rapidly, or not at all. Another 
consideration which M. Dunoyer seems to 
have overlooked, is, that institutions and 
modes of tuition which never could be made 
sufficiently popular to repay, with a profit, 
the expenses incurred on them, may be in¬ 
valuable to the many by giving the highest 
quality of education to the few, and keeping 
up the perpetual succession ofsuperiorminds, 
by whom knowledge is advanced, and the 
community urged forward in civilization. 


however cannot fairly be done, without 
taking measures to ensure that such 
instruction shall he always accessible 
to them, either gratuitously or at a 
trifling expense. 

It may indeed be objected that the 
education of children is one of those 
expenses which parents, even of the 
labouring class, ought to defray; that 
it is desirable that they should feel it 
incumbent on them to provide by their 
own means for the fulfilment of their 
duties, and that by giving education at 
the cost of others, just as much as by 
giving subsistence, the standard of 
necessary wages is proportionally low¬ 
ered, and the springs of exertion and 
self-restraint in so much relaxed. This 
argument could, at best, be only valid 
if the question were that of substi¬ 
tuting a public provision for what indi¬ 
viduals would otherwise do for them¬ 
selves ; if all parents in the labouring 
class recognised and practised the duty 
of giving instruction to their children 
at their own expense. But inasmuch 
as parents do not practise this duty, 
and do not include education among 
those necessary expenses which their 
wages must provide for, therefore the 
general rate of wages is not high enough 
to bear those expenses, and they must 
be borne from some other source. And 
this is not one of the cases in which 
the tender of help perpetuates the state 
of things which renders help necessary. 
Instruction, when it is really such, does 
not enervate, but strengthens as well 
as enlarges the active faculties: in 
whatever manner acquired, its effect on 
the mind is favourable to the spirit of 
independence : and when, unless had 
gratuitously, it would not be had at all, 
help in this form has the opposite ten¬ 
dency to that which in so many other 
cases makes it objectionable ; it is help 
towards doing without help. 

In England, and most European 
countries, elementary instruction can¬ 
not be paid for, at its full cost, from the 
common wages of unskilled labour, and 
would not if it could. The alternative 
therefore is not between government 
and private speculation, but between a 
government provision and voluntary 
charity : between interference by go- 



LIMITS OF THE PROVENCE OF GOVERNMENT. 


vemment, and interference by associa¬ 
tions of individuals, subscribing their 
own money for the purpose, like the 
two great School Societies. It is, of 
course, not desirable that anything 
should be done by funds derived from 
compulsory taxation, which is already 
sufficiently well done by individual 
liberality. How far this is the case 
with school instruction, is, in each par¬ 
ticular instance, a question of fact. 
The education provided in this country 
on the voluntary principle has of late 
been so much discussed, that it is need¬ 
less in this place to criticise it minutely, 
and I shall merely express my convic¬ 
tion, that even in quantity it is, and is 
likely to remain, altogether insufficient, 
while in quality, though with some 
slight tendency to improvement, it is 
never good except by some rare acci¬ 
dent, and generally so bad as to be 
little mere than nominal. I hold it 
therefore the duty of the government 
to supply the defect by giving pecu¬ 
niary support to elementary schools, 
such as to render them accessible to all 
the children of the poor, either freely, 
or for a payment too inconsiderable to 
be sensibly felt. 

One thing must be strenuously in¬ 
sisted on; that the government must 
claim no monopoly for its education, 
either in the lower or in the higher 
branches; must exert neither autho¬ 
rity nor influence to induce the people 
to resort to its teachers in preference 
to others, and must confer no peculiar 
advantages on those who have been 
instructed by them. Though the go¬ 
vernment teachers will probably be 
superior to the average of private in¬ 
structors, they will not embody all the 
knowledge and sagacity to be found in 
all instructors taken together, and it is 
desirable to leave open as many roads 
as possible to the desired end. It is 
not endurable that a government should, 
either in law or in fact, have a complete 
control over the education of the people. 
To possess such a control, and actually 
exert it, is to be despotic. A govern¬ 
ment which can mould the opinions 
and sentiments of the people from their 
youth upwards, can do with them what¬ 
ever it pleases. Though a government, 
P.K. 


577 

therefore, may, and in many cases 
ought to, establish schools and col¬ 
leges, it must neither compel nor bribe 
any person to come to them ; nor ought 
the power of individuals to set up rival 
establishments, to depend in any degree 
upon its authorization. It would be 
justified in requiring from all the people 
that they shall possess instruction in 
certain things, but not in prescribing 
to them how or from whom they shall 
obtain it. 

§ 9. In the matter of education, the 
intervention of government is justi¬ 
fiable, because the case is not one in 
which the interest and judgment of the 
consumer are a sufficient security for 
the goodness of the commodity. Let 
us now consider another class of cases, 
where there is no person in the situa¬ 
tion of a consumer, and where the in¬ 
terest and judgment to be relied on are 
those of the agent himself; as in the 
conduct of any business in which he 
is exclusively interested, or in en¬ 
tering into any contract or engage¬ 
ment by which he himself is to be 
bound. 

The ground of the practical principle 
of non-interference must here be, that 
most persons take a juster and more 
intelligent view of their own interest, 
and of the means of promoting it, than 
can either be prescribed to them by a 
general enactment of the legislature, or 
pointed out in the particular case by a 
public functionary. The maxim is un¬ 
questionably sound as a general rule : 
but there is no difficulty in perceiving 
some very large and conspicuous ex¬ 
ceptions to it. These may be classed 
under several heads. 

First:—The individual who is pre¬ 
sumed to be the best judge of his own 
interests may be incapable of judging 
or acting for himself; may be a lunatic, 
an idiot, an infant: or though not 
wholly incapable, may be of immature 
years and judgment. In this case the 
foundation of the non-interference prin¬ 
ciple breaks down entirely. The per¬ 
son most interested is not the best 
judge of the matter, nor a competent 
judge at all. Insane persons are every¬ 
where regarded as proper objects of the 

P P 




BOOK Y. CHAPTER XI. § 9. 


578 

care of the state.* In the case of 
children and young persons, it is com¬ 
mon to say, that though they cannot 
judge for themselves, they have their 
parents or other relatives to judge for 
them. But this removes the question 
into a different category; making it no 
longer a question whether the govern¬ 
ment should interfere with individuals 
in the direction of their own conduct 
and interests, but whether it should 
leave absolutely in their power the 
conduct and interests of somebody else. 
Parental power is as susceptible of 
abuse as any other power, and is, as a 
matter of fact, constantly abused. If 
laws do not succeed in preventing 
parents from brutally ill-treating, and 
even from murdering their children, far 
less ought it to be presumed that the 
interests of children will never be sa¬ 
crificed, in more commonplace and less 
revolting ways, to the selfishness or the 
ignorance of their parents. Whatever 
it can be clearly seen that parents 
ought to do or forbear for the interest 

* The practice of the English law with 
respect to insane persons, especially on the 
all-important point of the ascertainment of 
insanity, most urgently demands reform. 
At present no persons, whose property is 
worth coveting, and whose nearest relations 
are unscrupulous, or on bad terms with 
them, are secure against a commission of 
lunacy. At the instance of the persons who 
•would profit by their being declared insane, 
a jury may be impanelled and an investiga¬ 
tion held at the expense of the property, in 
which all their personal peculiarities, with all 
the additions made by the lying gossip of low 
servants, are poured into the credulous ears 
of twelve petty shopkeepers, ignorant of all 
ways of life except those of their own class, 
and regarding every trait of individuality in 
character or taste as eccentricity, and all 
eccentricity as either insanity or wickedness. 
If this sapient tribunal gives the desired ver¬ 
dict, the properly is handed over to perhaps 
the last persons whom the rightful owner 
would have desired or suffered to possess it. 
Some recent instances of this kind of inves¬ 
tigation have been a scandal to the adminis¬ 
tration of justice. Whatever other changes 
in this branch of law may be made, two at 
least are imperative : lirst, that, as in other 
legal proceedings, the expenses should not 
be borne b3 r the person on trial, but by 
the promoters of the inquiry, subject to 
recovery of c-osts in case of success: and 
secondly, that the property of a person 
declared insane, should in no case be made 
over to heirs while the proprietor is alive, 
but should be managed by a public officer 
until his death or recovery. 


of children, the law is warranted, if it 
is able, in compelling to be done or for¬ 
borne, and is generally bound to do so. 
To take an example from the peculiar 
province of political economy; it is 
right that children, and young persons 
not yet arrived at maturity, should be 
protected, so far as the eye and hand 
of the state can reach, from being 
over-worked. Labouring for too many 
hours in the day, or on work beyond 
their strength, should not be permitted 
to them, for if permitted it may always 
be compelled. Freedom of contract, 
in the case of children, is but another 
word for freedom of coercion. Educa¬ 
tion also, the best which circumstances 
admit of their receiving, is not a thing 
which parents or relatives, from indif¬ 
ference, jealousy, or avarice, should, 
have it in their power to withhold. 

The reasons for legal intervention 
in favour of children, apply not less 
strongly to the case of those unfortu¬ 
nate slaves and victims of the most 
brutal part of mankind, the lower 
animals. It is by the grossest misun¬ 
derstanding of the principles of liberty, 
that the inflict ion of exemplary punish¬ 
ment on ruffianism practised towards 
these defenceless creatures, has been 
treated as a meddling by government 
with things beyond its province; an 
interference with domestic life. The 
domestic life of domestic tyrants is 
one of the things which it is the most- 
imperative on the law to interfere 
with; and it is to be regretted that 
metaphysical scruples respecting the 
nature and source of the authority of 
government, should induce many warm 
supporters of laws against cruelty to 
animals, to seek for a justification of 
such laws in the incidental conse¬ 
quences of the indulgence of ferocious 
habits, to the interests of human 
beings, rather than in the intrinsic 
merits of the case itself. What it 
would be the duty of a human being, 
possessed of the requisite physical 
strength, to provent by force if at¬ 
tempted in his presence, it cannot be 
less incumbent on society generally to 
repress. The existing laws of England 
on the subject are chiefly defective in 
the trifling, often almost nominal, 






LIMITS OF THE PROVINCE OF GOVERNMENT. 


maximum, to which the penalty even 
in the worst cases is limited. 

Among those members of the com¬ 
munity whose freedom of contract 
ought to be controlled by the legisla¬ 
ture for their own protection, on ac¬ 
count (it is said) of their dependent 
position, it is frequently proposed to 
include women: and in the existing 
Factory Act, their labour, in common 
with that of young persons, has been 
placed under peculiar restrictions. 
But the classing together, for this and 
other purposes, of women and children, 
appears to me both indefensible in 
principle and mischievous in practice. 
Children below a certain age cannot 
judge or act for themselves; up to a 
considerably greater age they are in¬ 
evitably more or less disqualified for 
doing so; but women are as capable as 
men of appreciating and managing 
their own concerns, and the only hin¬ 
drance to their doing so arises from 
the injustice of their present social 
position. So long as the law makes 
everything which the wife acquires, the 
property of the husband, while by com¬ 
pelling her to live with him it forces 
her to submit to almost any amount of 
moral and even physical tyranny 
which he may choose to inflict, there 
is some ground for regarding every act 
done by her as done under coercion : 
but it is the great error of reformers 
and philanthropists in our time, to 
nibble at the consequences of unjust 
power instead of redressing the injus¬ 
tice itself. If women had as absolute 
a control as men have, over their own 
persons and their own patrimony or 
acquisitions, there would be no plea 
for limiting their hours of labouring 
for themselves, in order that they might 
have time to labour for the husband, in 
what is called, by the advocates of re¬ 
striction, his home. Women employed 
in factories are the only women in the 
labouring rank of life whose position is 
not that of slaves and drudges; pre¬ 
cisely because they cannot easily be 
compelled to work and earn wages in 
factories against their will. For im¬ 
proving the condition of women, it 
should, on the contrary, be an object to 
give them the readiest access to inde- 


579 

pendent industrial employment, instead 
of closing, either entirely or partially, 
that which is already open to them. 

§ 10. A second exception to the 
doctrine that individuals are the best 
judges of their own interest, is when 
an individual attempts to decide irre¬ 
vocably now, what will be best for his 
interest at some future and distant 
tiine.. The presumption in favour of 
individual judgment is only legitimate, 
where the judgment is grounded on 
actual, and especially on present, per¬ 
sonal experience; not where it is 
formed antecedently to experience, and 
not suffered to be reversed even after 
experience has condemned it. When 
persons have bound themselves by a 
contract, not simply to do some one 
thing, but to continue doing some¬ 
thing for ever or for a prolonged period, 
without any power of revoking the en¬ 
gagement, the presumption which their 
perseverance in that course of conduct 
would otherwise raise in favour of its 
being advantageous to them, does not 
exist; and any such presumption 
which can be grounded on their having 
voluntarily entered into the contract, 
perhaps at an early age, and "without 
any real knowledge of what they un¬ 
dertook, is commonly next to null. The 
practical maxim of leaving contracts 
free, is not applicable without great 
limitations in case of engagements in 
perpetuity; and the law should be ex¬ 
tremely jealous of such engagements; 
should refuse its sanction to them, 
when the obligations they impose are 
such as the contracting party cannot 
be a competent judge of; if it ever does 
sanction them, it should take every 
possible security for their being con¬ 
tracted with foresight and deliberation; 
and in compensation for not permit¬ 
ting the parties themselves to revoke 
their engagement, should grant them 
a release from it, on a sufficient case 
being made out before an impartial 
authority. These considerations are 
eminently applicable to marriage, the 
most important of all cases of engage¬ 
ment for life. 

§ 11 . The third exception which I 

F P 2 




BOOK V. CHAPTER XI. §11. 


580 

shall notice, to the doctrine that go¬ 
vernment cannot manage the affairs of 
individuals as well as the individuals 
themselves, has reference to the great 
class of cases in which the individuals 
can only manage the concern by dele¬ 
gated agency, and in which the so- 
called private management is, in point 
of fact, hardly better entitled to he 
called management by the persons in¬ 
terested, than administration by a 
public officer. Whatever, if left to 
spontaneous agency, can only be done 
by joint-stock associations, will often 
be as well, and sometimes better done, 
as far as the actual work is concerned, 
by the state. Government manage¬ 
ment is, indeed, proverbially jobbing, 
careless, and ineffective, but so like¬ 
wise has generally been joint-stock 
management. The directors of a 
joint-stock company, it is true, are 
always shareholders; but also the 
members of a government are invari¬ 
ably taxpayers; and in the case of 
directors, no more than in that of go¬ 
vernments, is their proportional share 
of the benefits of good management, 
equal to the interest they may possibly 
have in mismanagement, even without 
reckoning the interest of their ease. 
It may be objected, that the share¬ 
holders, in their collective character, 
exercise a certain control over the 
directors, and have almost always full 
power to remove them from office. 
Practically, however, the difficulty of 
exercising this power is found to be so 
great, that it is hardly ever exercised 
except in cases of such flagrantly un¬ 
skilful, or, at least, unsuccessful ma¬ 
nagement, as would generally produce 
the ejection from office of managers 
appointed by the government. Against 
the very ineffectual security afforded 
by meetings of shareholders, and by 
their individual inspection and en¬ 
quiries, may be placed the greater 
publicity and more active discus¬ 
sion and comment, to be expected 
in free countries with regard to 
affairs in which the general govern¬ 
ment takes part. The defects, there¬ 
fore, of government management, do 
not seem to be necessarily much 
greater, if necessarily greater at all, 


than those of management by joint- 
stock. 

The true reasons in favour of leaving 
to voluntary associations all such things 
as they are competent to perform, 
would exist in equal strength if it were 
certain that the work itself would be 
as well or better done by public officers. 
These reasons have been already 
pointed out: the mischief of overload¬ 
ing the chief functionaries of govern¬ 
ment with demands on their attention, 
and diverting them from duties which 
they alone can discharge, to objects 
which can be sufficiently well attained 
without them ; the danger of unneces¬ 
sarily swelling the direct power and 
indirect influence of government, and 
multiplying occasions of collision be¬ 
tween its agents and private citizens; 
and the inexpediency of concentrating 
in a dominant bureaucracy, all the 
skill and experience in the manage¬ 
ment of large interests, and all the 
power of organized action, existing in 
the community; a practice which keeps 
the citizens in a relation to the govern¬ 
ment like that of children to their 
guardians, and is a main cause of the 
inferior capacity for political life which 
has hitherto characterized the over¬ 
governed countries of the Continent, 
whether with or without the forms of 
representative government.* 

But although, for these reasons, most 
things which are likely to be even 
tolerably done by voluntary associa¬ 
tions, should, generally speaking, be 

* A parallel case may be found in the 
distaste for polities, and absence of public 
spirit, by which women, as a class, are cha¬ 
racterized in the present state of society, and 
which is often felt and complained of by 
political reformers, without, in general, 
making them willing to recognise, or de¬ 
sirous to remove, its cause. It obviously 
arises from their being taught, both by 
institutions and by the whole of their educa¬ 
tion, to regard themselves as entirely apart 
from politics. Wherever they have been 
politicians, they have shown as great interest 
in the subject, and as great aptitude for it, 
according to the spirit of their time, as the 
men with whom they were cotemporaries: 
in that period of history (for example) in 
which Isabella of Castile and Elizabeth of 
England were, not rare exceptions, but 
merely brilliant examples of a spirit and 
capacity very largely diffused among women 
of high station and cultivation in Europe. 



LIMITS OF THE PROVINCE OF GOVERNMENT. 581 


left to them; it docs not follow that 
the manner in which those associations 
perform their work should be entirely 
uncontrolled by the government. There 
are many cases in which the agency, 
of whatever nature, by which a service 
is performed, is certain, from the nature 
of the case, to be virtually single; in 
which a practical monopoly, with all 
the power it confers of taxing the com¬ 
munity, cannot be prevented from ex¬ 
isting. I have already more than once 
adverted to the case of the gas and 
water companies, among which, though 
perfect freedom is allowed to competi¬ 
tion, none really takes place, and prac¬ 
tically they are found to be even more 
irresponsible, and unapproachable by 
individual complaints, than the govern¬ 
ment. There are the expenses without 
the advantages of plurality of agency; 
and the charge made for services 
which cannot be dispensed with, is, in 
substance, quite as much compulsory 
taxation as if imposed by law: there 
are few householders who make any 
distinction between their “waterrate” 
and their other local taxes. In the 
case of these particular services, the 
reasons preponderate in favour of their 
being performed, like the paving and 
cleansing of the streets, not certainly 
by the general government of the state, 
but by the municipal authorities of the 
town, and the expense defrayed, as 
even now it in fact is, by a local rate. 
But in the many analogous cases 
which it is best to resign to voluntary 
agency, the community needs some 
other security for the fit performance 
of the service than the interest of the 
managers ; and it is the part of govern¬ 
ment, either to subject the business to 
reasonable conditions for the general 
advantage, or to retain such pow r er 
over it, that the profits of the mono¬ 
poly may at least be obtained for the 
public. This applies to the case of 
a road, a canal, or a railway. These 
are always, in a great degree, prac¬ 
tical monopolies; and a government 
which concedes such monopoly un¬ 
reservedly to a private company, 
does much the same thing as if it 
allowed an individual or an association 
to levy any tax they chose, for their 


own benefit, on all the malt produced 
in the country, or on all the cotton 
imported into it. To make the con¬ 
cession for a limited time is generally 
justifiable, on the principle which jus¬ 
tifies patents for inventions: hut the 
state should either reserve to itself a 
reversionary property in such public 
works, or should retain, and freely ex¬ 
ercise, the right of fixing a maximum 
of fares and cliai'ges, and, from time to 
time, varying that maximum. It is 
perhaps necessary to remark, that the 
state may be the proprietor of canals 
or railways without itself working 
them; and that they will almost 
always be better -worked by means of 
a company, renting the railway or canal 
for a limited period from the state. 

§ 12. To a fourth case of exception 
I must request particular attention, it 
being one to which, as it appears to 
me, the attention of political economists 
has not yet been sufficiently drawn. 
There are matters in wliich the inter¬ 
ference of law is required, not to over¬ 
rule the judgment of individuals re¬ 
specting their owm interest, but to give 
effect to that judgment; they being 
unable to give effect to it except by 
concert, which concert again cannot be 
effectual unless it receives validity and 
sanction from the law. For illustra¬ 
tion, and without prejudging the par¬ 
ticular point, I may advert to the 
question of diminishing the hours of 
labour. Let us suppose, what is at 
least supposable, whether it be the fact 
or not—that a general reduction of the 
hours of factory labour, say from ten to 
nine, would be for the advantage of the 
■work-people : that they wrnuld receive 
as high wages, or nearly as high, for 
nine hours labour as they receive for 
ten. If this would be the result, and 
if the operatives generally are con¬ 
vinced that it would, the limitation, 
some may say, will be adopted spon¬ 
taneously. I answer, that it will not 
be adopted unless the body of opera¬ 
tives bind themselves to one another 
to abide by it. A workman who re¬ 
fused to work more than nine hours 
while there were others who worked 
ten, would either not be employed at 






BOOK V. CHAPTER XI. § 12. 


582 

all, or if employed, must submit to lose 
one-tentli of his wages. However con¬ 
vinced, therefore, he may be that it is 
the interest of the class to work short 
time, it is contrary to his own interest 
to set the example, unless he is well 
assured that all or most others will 
follow it. But suppose a general agree¬ 
ment of the whole class: might not 
this be effectual without the sanction 
of law? Not unless enforced by 
opinion with a rigour practically equal 
to that of law. For however beneficial 
the observance of the regulation might 
be to the class collectively, the imme¬ 
diate interest of every individual would 
lie in violating it: and the more nume¬ 
rous those were who adhered to the rule, 
the more would individuals gain by de¬ 
parting from it. If nearly all restricted 
themselves to nine hours, those who 
chose to work for ten would gain all 
the advantage of the restriction, to¬ 
gether with the profit of infringing it; 
they would get ten hours wages for 
nine hours work, and an hour’s wages 
besides. I grant that if a large majo¬ 
rity adhered to the nine hours, there 
would be no harm done : the benefit 
would be, in the main, secured to the 
class, while those individuals who pre¬ 
ferred to work harder and earn more, 
would have an opportunity of doing so. 
This certainly would be the state of 
things to be wished for; and assuming 
that a reduction of hours without any 
diminution of wages could take place 
without expelling the commodity from 
some of its markets—which is in every 
particular instance a question of fact, 
not of principle—the manner in which 
it would be most desirable that this 
effect should be brought about, would 
be by a quiet change in the general 
custom of the trade; short hours be¬ 
coming, by spontaneous choice, the 
general practice, but those who chose 
to deviate from it having the fullest 
liberty to do so. Probably, however, 
so many would prefer the ten hours 
work on the improved terms, that the 
limitation could not be maintained as 
a general practice: what some did 
from choice, others would soon be 
obliged to do from necessit)’, and those 
who had chosen long hours for the 


sake of increased wages, would be 
forced in the end to work long hours 
for no greater wages than before. As¬ 
suming then that it really would be 
the interest of each to work only nine 
hours if he could be assured that all 
others would do the same, there might 
be no means of their attaining this 
object but by converting their supposed 
mutual agreement into an engagement 
under penalty, by consenting to have 
it enforced by law. I am not express¬ 
ing any opinion in favour of such an 
enactment, which has never been de¬ 
manded, and which I certainly should 
not, in present circumstances, recom¬ 
mend : but it serves to exemplify the 
manner in which classes of persons 
may need the assistance of law, to give 
effect to their deliberate collective 
opinion of their own interest, by afford¬ 
ing to every individual a guarantee 
that his competitors will pursue the 
same course, without which he cannot 
safely adopt it himself. 

Another exemplification of the same 
principle is afforded by what is known 
as the Wakefield system of coloniza¬ 
tion. This system is grounded on the 
important principle, that the degree of 
productiveness of land and labour de¬ 
pends on their being in a due propor¬ 
tion to one another; that if a few 
persons in a newly-settled country at¬ 
tempt to occupy and appropriate a 
large district, or if each labourer be¬ 
comes too soon an occupier and culti¬ 
vator of land, there is a loss of produc¬ 
tive power, and a great retardation of 
the progress of the colony in wealth 
and civilization : that nevertheless the 
instinct (as it may almost be called) of 
appropriation, and the feelings asso¬ 
ciated in old countries with landed 
proprietorship, induce almost every 
emigrant to take possession of as much 
land as he has the means of acquiring, 
and eveiy labourer to become at once 
a proprietor, cultivating his own land 
with no other aid than that of his 
family. If this propensity to the im¬ 
mediate possession of land could be 
in some degree restrained, and each 
labourer induced to work a certain 
number of years on hire before he 
became a landed proprietor, a per- 





LIMITS OF THE PROVINCE OF GOVERNMENT. 


petual stock of hired labourers could 
be maintained, available for roads, 
canals, works of irrigation, &c., and 
for tlie establishment and carrying on 
of the different branches of town in¬ 
dustry ; whereby the labourer, when he 
did at last become a landed proprietor, 
would find his land much more valu¬ 
able, through access to markets, and 
facility of obtaining hired labour. Mr. 
Wakefield therefore proposed to check 
the premature occupation of land, and 
dispersion of the people, by putting 
upon all unappropriated lands a rather 
high price, the proceeds of which were 
to be expended in conveying emigrant 
labourers from the mother country. 

This salutary provision, however, has 
been objected to, in the name and on 
the authority of what was represented 
as the great principle of political eco¬ 
nomy, that individuals are the best 
judges of their own interest. It was 
said, that when things are left to them¬ 
selves, land is appropriated and occu¬ 
pied by the spontaneous choice of 
individuals, in the quantities and at 
the times most advantageous to each 
person, and therefore to the community 
generally; and that to interpose arti¬ 
ficial obstacles to their obtaining land, 
is to prevent them from adopting the 
course which in their own judgment is 
most beneficial to them, from a self- 
conceited notion of the legislator, that 
he knows what is most for their inte¬ 
rest, better than they do themselves. 
Now this is a complete misunderstand¬ 
ing, either of the system itself, or of 
the principle with which it is alleged 
to conflict. The oversight is similar 
to that which we have just seen exem¬ 
plified on the subject of hours of labour. 
However beneficial it might be to the 
colony in the aggregate, and to each 
individual composing it, that no one 
should occupy more land than he can 
properly cultivate, nor become a pro¬ 
prietor until there are other labourers 
ready to take his place in working for 
hire ; it can never be the interest of an 
individual to exercise this forbearance, 
unless he is assured that others will do 
so too. Surrounded by settlers who 
have each their thousand acres, how is 
.he benefited by restricting himself to 


583 

fifty? or what does a labourer gain by 
deferring the acquisition altogether for 
a few years, if all other labourers rush 
to convert their first earnings into 
estates in the wilderness, several miles 
apart from one another ? If they, by 
seizing on land, prevent the formation 
of a class of labourers for wages, he 
will not, by postponing the time of his 
becoming a proprietor, be enabled to 
employ the land with any greater ad¬ 
vantage when he does obtain it; to 
what end therefore should he place 
himself in what will appear to him and 
others a position of inferiority, by re¬ 
maining a hired labourer when all 
around him are proprietors ? It is the 
interest of each to do what is good for 
all, but only if others will do likewise. 

The principle that each is the best 
judge of his own interest, understood 
as these objectors understand it, would 
prove that governments ought not to 
fulfil any of their acknowledged duties 
—ought not, in fact, to exist at all. It 
is greatly the interest of the commu¬ 
nity, collectively and individually, not 
to rob or defraud one another: but 
there is not the less necessity for laws 
to punish robbery and fraud ; because, 
though it is the interest of each that 
nobody should rob or cheat, it is not 
any one’s interest to refrain from rob¬ 
bing and cheating others when all 
others are permitted to rob and cheat 
him. Penal laws exist at all, chiefly 
for this reason, because even an 
unanimous opinion that a certain line 
of conduct is for the general interest, 
does not always make it people’s indi¬ 
vidual interest to adhere to that line of 
conduct. 

§ 13. Fifthly; the argument against 
government interference grounded on 
the maxim that individuals are the 
best judges of their own interest, can¬ 
not apply to the very large class of 
cases, in which those acts of individuals 
with which the government claims to 
interfere, are not done by those indi¬ 
viduals for their own interest, but for 
the interest of other people. This in¬ 
cludes, among other things, the impor¬ 
tant and much agitated subject of 
public charity. Though individuals 






584 BOOK V. CHAPTER XI. § 13. 


should, in general, be left to do for 
themselves whatever it can reasonably 
he expected that they should be capable 
of doing, yet when they are at any 
rate not to be left to themselves, but to 
be helped by other people, the question 
arises whether it is better that they 
should receive this help exclusively 
from individuals, and therefore uncer¬ 
tainly and casually, or by systematic 
arrangements, in which society acts 
through its organ, the state. 

This brings us to the subject of Poor 
Laws; a subject which would be of 
very minor importance if the habits of 
all classes of the people were temperate 
and prudent, and the diffusion of pro¬ 
perty satisfactory; but of the greatest 
moment in a state of things so much 
the reverse of this, in both points, as 
that which the British islands present. 

Apart from any metaphysical con¬ 
siderations respecting the foundation 
of morals or of the social union, it will 
be admitted to be right that human 
beings should help one another; and 
the more so, in proportion to the 
urgency of the need: and none needs 
help so urgently as one who is starving. 
The claim to help, therefore, created 
by destitution, is one of the strongest 
which can exist; and there is primti 
facie the amplest reason for making 
the relief of so extreme an exigency as 
certain to those who require it, as by 
any arrangements of society it can be 
made. 

On the other hand, in all cases of 
helping, there are two sets of conse¬ 
quences to be considered; the con¬ 
sequences of the assistance itself, and 
the consequences of relying on the 
assistance. The former are generally 
beneficial, but the latter, for the most 
part, injurious ; so much so, in many 
cases, as greatly to outweigh the value 
of the benefit. And this is nevermore 
likely to happen than in the very cases 
where the need of help is the most 
intense. There are few things for 
which it is more mischievous that 
people should rely on the habitual aid 
of others, than for the means of sub¬ 
sistence, and unhappily there is no lesson 
which they more easily learn. The 
problem to be solved is therefore one 


of peculiar nicety as well as impor¬ 
tance ; how to give the greatest amount 
of needful help, with the smallest en¬ 
couragement to undue reliance on it. 

Energy and self-dependence are, how¬ 
ever, liable to be impaired by the ab¬ 
sence of help, as well as by its excess. 
It is even more fatal to exertion to 
have no hope of succeeding by it, than 
to be assured of succeeding without it. 
When the condition of any one is so 
disastrous that his energies are para¬ 
lyzed by discouragement, assistance is 
a tonic, not a sedative: it braces in¬ 
stead of deadening the active faculties: 
always provided that the assistance i3 
not such as to dispense with self-help, 
by substituting itself for the person's 
own labour, skill, and prudence, but is 
limited to affording him a better hope 
of attaining success by those legiti¬ 
mate means. This accordingly is a 
test to which all plans of philanthropy 
and benevolence should be brought, 
whether intended for the benefit of in¬ 
dividuals or of classes, and whether 
conducted on the voluntary or on the 
government principle. 

In so far as the subject admits of 
any general doctrine or maxim, it would 
appear to be this—that if assistance is 
given in such a manner that the con¬ 
dition of the person helped is as de¬ 
sirable as that of the person who 
succeeds in doing the same thing 
without help, the assistance, if capable 
of being previously calculated on, is 
mischievous : but if’ while available to 
everybody, it leaves to every one a 
strong motive to do without it if he 
can, it is then for the most part bene¬ 
ficial. This principle, .applied to a 
system of public charity, is that of the 
Poor Law of 1834. If the condition 
of a person receiving relief is made as 
eligible as that of the labourer who 
supports himself by his own exertions, 
the system strikes at the root of all 
individual industry and self-govern¬ 
ment ; and, if fully acted up to, would 
require as its supplement an organized 
system of compulsion, for governing 
and setting to work like cattle, those 
who had been removed from the in¬ 
fluence of the motives that act on 
human beings. But if, consistently 



LIMITS OF THE PROVINCE OF GOVERNMENT. 


with guaranteeing all persons against 
absolute want, the condition of those 
who are supported by legal charity can 
be kept considerably less desirable than 
the condition of those who find support 
for themselves, none but beneficial con¬ 
sequences can arise from a law which 
renders it impossible for any person, 
except by his own choice, to die from 
insufficiency of food. That in England 
at least this supposition can be realized, 
is proved by the experience of a long 
period preceding the close of the last 
century, as well as by that of many 
highly pauperized districts in more 
recent times, which have been depau¬ 
perized by adopting strict rules of poor- 
law administration, to the great and 
permanent benefit of the whole la¬ 
bouring class. There is probably no 
country in which, by varying the means 
suitably to the character of the people, 
a legal provision for the destitute might 
not be made compatible with the obser¬ 
vance of the conditions necessary to its 
being innocuous. 

Subject to these conditions, I con¬ 
ceive it to be highly desirable, that 
the certainty of subsistence should be 
held out by law to the destitute able- 
bodied, rather than that their relief 
should depend on voluntary charity. 
In the first place, charity almost 
always does too much or too little : it 
lavishes its bounty in one place, and 
leaves people to starve in another. 
Secondly, since the state must neces¬ 
sarily provide subsistence for the cri¬ 
minal poor while undergoing punish¬ 
ment, not to do the same for the poor 
who have not offended is to give a 
premium on crime. And lastly, if the 
poor are left to individual charity, a 
vast amount of mendicity is inevitable. 
What the state may and should aban¬ 
don to private charity, is the task of 
distinguishing between one case of 
real necessity and another. Private 
charity can give more to the more de¬ 
serving. The state must act by general 
rules. It cannot undertake to discrimi¬ 
nate between the deserving and the 
undeserving indigent. It owes no more 
than subsistence to the first, and can 
give no less to the last. What is said 
about the injustice of a law which has , 


585 ' 

no better treatment for the merely 
unfortunate poor than for the ill-con- 
ducted, is founded on a misconception 
of the province of law and public au¬ 
thority. The dispensers of public re¬ 
lief have no business to be inquisitors. 
Guardians and overseers are not fit to 
be trusted to give or withhold other 
people’s money according to their ver¬ 
dict on the morality of the person so¬ 
liciting it; and it would show much 
ignorance of the ways of mankind to 
suppose that such persons, even in the 
almost impossible case of their being 
qualified, will take the trouble of ascer¬ 
taining and sifting the past conduct of 
a person in distress, so as to form a 
rational judgment on it. Private cha¬ 
rity can make these distinctions ; and 
in bestowing its own money, is en¬ 
titled to do so according to its own 
judgment. It should understand that 
this is its peculiar and appropriate 
province, and that it is commendable 
or the contrary, as it exercises the 
function with more or less discern¬ 
ment. But the administrators of a 
public fund ought not to be required 
to do more for anybody, than that 
minimum which is due even to the 
worst. If they are, the indulgence 
very speedily becomes the rule, and 
refusal the more or less capricious or 
tyrannical exception. 

§ 14. Another class of cases which 
fall within the same general principle 
as the case of public charity, are those 
in which the acts done by individuals, 
though intended solely for their own 
benefit, involve consequences extend¬ 
ing indefinitely beyond them, to inte¬ 
rests of the nation or of posterity, for 
which society in its collective capacity 
is alone able, and alone bound, to pro¬ 
vide. One of these cases is that of 
Colonization. If it is desirable, as no 
one will deny it to be, that the plant¬ 
ing of colonies should be conducted, 
not with an exclusive view to the pri¬ 
vate interests of the first founders, but 
with a deliberate regard to the perma¬ 
nent welfare of the nations afterwards 
to arise from these small beginnings; 
such regard can only be secured by- 
placing the enterprise, from its com- 





■586 BOOK Y. CHAPTER XI. S 14. 


mencement, under regulations con¬ 
structed with the foresight and en¬ 
larged views of philosophical legis¬ 
lators ; and the government alone has 
power either to frame such regulations, 
or to enforce their observance. 

The question of government inter¬ 
vention in the work of Colonization 
involves the future and permanent in¬ 
terests of civilization itself, and far 
outstretches the comparatively narrow 
limits of purely economical considera¬ 
tions. But even with a view to those 
considerations alone, the removal of 
population from the overcrowded to 
the unoccupied parts of the earth’s sur¬ 
face is one of those works of eminent 
social usefulness, which most require, 
and which at the same time best re¬ 
pay, the intervention of government. 

To appreciate the benefits of colo- • 
nization, it should be considered in its 
relation, not to a single country, but 
to the collective economical interests 
of the human race. The question is in 
general treated too exclusively as one 
of distribution ; of relieving one labour- 
market and supplying another. It is 
this, but it is also a question of pro¬ 
duction, and of the most efficient em¬ 
ployment of the productive resources 
of the world. Much has been said of 
the good economy of importing com¬ 
modities from the place where they 
can be bought cheapest; while the 
good economy of producing them where 
they can be produced cheapest, is 
comparative^ little thought of. If to 
cany consumable goods from the 
places where they are superabundant 
to those where they are scarce, is a 
good pecuniary speculation, is it not 
an equally good speculation to do the 
same thing with regard to labour and 
instruments ? The exportation of la¬ 
bourers and capital from old to new 
countries, from a place where their 
productive power is less, to a place 
where it is greater, increases by so 
much the aggregate produce of the 
labour and capital of the world. It 
adds to the joint wealth of the old and 
the new country, what amounts in a 
short period to many times the mere 
cost of effecting the transport. There 
needs be no hesitation in affirming 


that Colonization, in the present state 
of the world, is the best affair of busi¬ 
ness, in which the capital of an old 
and wealthy country can engage. 

It is equally obvious, however, that 
Colonization on a great scale can be 
undertaken, as an affair of business, 
only by the government, or by some 
combination of individuals in complete 
understanding with the government; 
except under such very peculiar cir¬ 
cumstances as those which succeeded 
the Irish famine. Emigration on the 
voluntary principle rarely has any 
material influence in lightening the 
pressure of population in the old coun¬ 
try, though as far as it goes it is doubt¬ 
less a benefit to the colony. Those 
labouring persons who voluntarily emi¬ 
grate are seldom the very poor; they 
are small farmers with some little 
capital, or labourers who have saved 
something, and who, in removing only 
their own labour from the crowded 
labour-market, withdraw from the 
capital of the country a fund which 
maintained and employed more la¬ 
bourers than themselves. Besides, this 
portion of the community is so limited 
in number, that it might be removed 
entirely, without making any sensible 
impression upon the numbers of the 
population, or even upon the annual 
increase. Any considerable emigration 
of labour is only practicable, when its 
cost is defrayed, or at least advanced, 
by others than the emigrants them¬ 
selves. Who then is to advance it? 
Naturally, it may be said, the capital¬ 
ists of the colony, who require the 
labour, and who intend to employ it. 
But to this there is the obstacle, that 
a capitalist, after going to the expense 
of carrying out labourers, has no se¬ 
curity that he shall be the person to 
derive any benefit from them. If all 
the capitalists of the colony were to 
combine, and bear the expense by sub¬ 
scription, they would still have no se¬ 
curity that the labourers, when there, 
would continue to work for them. After 
working for a short time and earning a 
few pounds, they always, unless pre¬ 
vented by the government, squat on 
unoccupied land, and work only for 
themselves. The experiment has been 




LIMITS OF THE PROVINCE OF GOVERNMENT. 


repeatedly tried whether it was pos¬ 
sible to enforce contracts for labour, 
or the repayment of the passage-money 
of emigrants to those who advanced it, 
and the trouble and expense have al¬ 
ways exceeded the advantage. The 
only other resource is the voluntary 
contributions of parishes or individuals, 
to rid themselves of surplus labourers 
who are already, or who are likely to 
become, locally chargeable on the poor- 
rate. Were this speculation to become 
general, it might produce a sufficient 
amount of emigration to clear off the 
existing unemployed population, but 
not to raise the wages of the em¬ 
ployed : and the same thing would re¬ 
quire to be done over again in less than 
another generation. 

One of the principal reasons why 
Colonization should be a national un¬ 
dertaking, is that in this manner alone, 
save in highly exceptional cases, can 
emigration be self-supporting. The 
exportation of capital and labour to a 
new country being, as before observed, 
one of the best of all affairs of business, 
it is absurd that it should not, like 
other affairs of business, repay its own 
expenses. Of the great addition which 
it makes to the produce of the world, 
there can be no reason why a sufficient 
portion should not be intercepted, and 
employed in reimbursing the outlay 
incurred in effecting it. For reasons 
already given, no individual, or body 
of individuals, can reimburse them¬ 
selves for the expense ; the govern¬ 
ment, however, can. It can take from 
the annual increase of wealth, caused 
by the emigration, the fraction which 
suffices to repay with interest what the 
emigration has cost. The expenses of 
emigration to a colony ought to be 
borne by the colony; and this, in 
general, is only possible when they are 
borne by the colonial government. 

Of the modes in which a fund for the 
support of colonization can be raised in 
the colony, none is comparable in ad¬ 
vantage to that which was first sug¬ 
gested, and has since been so ably and 
perseveringly advocated, by Mr. Wake¬ 
field: the plan of putting a price on all 
unoccupied land, and devoting the pro¬ 
ceeds to emigration. The unfounded 


587 

and pedantic objections to this plan 
have been answered in a former part 
of this chapter: we have now to speak 
of its advantages. First, it avoids the 
difficulties and discontents incident to 
raising a large annual amount by taxa¬ 
tion ; a thing which it is almost useless 
to attempt with a scattered population 
of settlers in the wilderness, who, as 
experience proves, can seldom be com¬ 
pelled to pay direct taxes, except at a 
cost exceeding their amount; while in 
an infant community indirect taxation 
soon reaches its limit. The salo of 
lands is thus by far the easiest mode of 
raising the requisite funds. But it has 
other and still greater recommenda¬ 
tions. It is a beneficial check upon 
the tendency of a population of co¬ 
lonists to adopt the tastes and inclina¬ 
tions of savage life, and to disperse so 
widely as to lose all the advantages of 
commerce, of markets, of separation of 
employments, and combination of la¬ 
bour. By making it necessary for 
those who emigrate at the expeuse of 
the fund, to earn a considerable sum 
before they can become landed pro¬ 
prietors, it keeps up a perpetual suc¬ 
cession of labourers for hire, who in 
every country are a most important 
auxiliary even to peasant proprietors : 
and by diminishing the eagerness of 
agricultural speculators to add to their 
domain, it keeps the settlers within 
reach of each other for purposes of co¬ 
operation, arranges a numerous body of 
them within easy distance of each 
centre of foreign commerce and non- 
agricultural industry, and ensures the 
formation and rapid growth of towns 
and town products. This concentra¬ 
tion, compared with the dispersion 
which uniformly occurs when unoccu¬ 
pied land can be had for nothing, 
greatly accelerates the attainment of 
prosperity, and enlarges the fund which 
may be drawn upon for further emigra¬ 
tion. Before the adoption of the Wake¬ 
field system, the early years of all new 
colonies were full of hardship and diffi¬ 
culty : the last colony founded on the 
old principle, the Swan River settle¬ 
ment, being one of the most charac¬ 
teristic instances. In all subsequent 
colonization, the Wakefield principle 





BOOK V. CHAPTER XI. § 14. 


588 

has been acted upon, though imper¬ 
fectly, a part only of the proceeds of 
the sale of land being devoted to emi¬ 
gration : yet wherever it has been in¬ 
troduced at all, as in South Australia, 
Victoria, and New Zealand, the re¬ 
straint put upon the dispersion of the 
settlers, and the influx of capital caused 
by the assurance of being able to obtain 
hired labour, has, in spite of many 
difficulties and much mismanagement, 
produced a suddenness and rapidity 
of prosperity more like fable than 
reality.* 

The self-supporting system of co¬ 
lonization, once established, would in¬ 
crease in efficiency every year; its 
effect would tend to increase in geo¬ 
metrical progression: for since every 
able-bodied emigrant, until the country 
is fully peopled, adds in a very short 
time to its wealth, over and above his 
own consumption, as much as would 
defray the expense of bringing out 
another emigrant, it follows that the 
greater the number already sent, the 
greater number might continue to be 
sent, each emigrant laying the founda¬ 
tion of a succession of other emigrants 
at short intervals without fresh ex¬ 
pense, until the colony is filled up. It 
would therefore be worth while, to the 
mother country, to accelerate the early 
stages of this progression, by loans to 
the colonies for the purpose of emigra¬ 
tion, repayable from the fund formed 
by the sales of land.. In thus ad¬ 
vancing the means of accomplishing a 
large immediate emigration, it would 
be investing that amount of capital in 
the mode, of all others, most beneficial 
to the colony; and the labour and 
savings of these emigrants would 
hasten the period at which a large 

* The objections which have been made, 
with so much virulence, in some of these 
colonies, to the Wakefield system, apply, in 
so far as they have any validity, not to the 
principle, but to some provisions which are 
no part of the system, and have been most 
unnecessarily and improperly engrafted on 
it; such a3 the offering OLdy a limited 
quantity of land for sale, and that by auction, 
and in lots of not less than 640 acres, 
instead of selling all land which is asked for, 
and allowing to the buyer unlimited freedom 
of choice, both as to quantity and situation, 
at a fixed price. 


sum would be available from sales of 
land. It would be necessary, in order 
not to overstock the labour-market, to 
act in concert with the persons disposed 
to remove their own capital to the 
colony. The knowledge that a large 
amount of hired labour would be avail¬ 
able, in so productive a field of em¬ 
ployment, would ensure a large emi¬ 
gration of capital from a country, like 
England, of low profits and rapid ac¬ 
cumulation : and it would only be ne¬ 
cessary not to send out a greater 
number of labourers at one time, than 
this capital could absorb and employ at 
high wages. 

Inasmuch as, on this system, any 
given amount of expenditure, once in¬ 
curred, would provide not merely a 
single emigration, but a perpetually 
flowing stream of emigrants, which 
would increase in breadth and depth 
as it flowed on ; this mode of relieving 
overpopulation has a recommendation, 
not possessed by any other plan ever 
proposed for making head against the 
consequences of increase without re¬ 
straining the increase itself: there is 
an element of indefiniteness in it; no 
one can perfectly foresee how far its 
influence, as a vent for surplus popu¬ 
lation, might possibly reach. There is 
hence the strongest obligation on the 
government of a country like our own, 
with a crowded population, and unoc¬ 
cupied continents under its command, 
to build, as it were, and keep open, a 
bridge from the mother country to 
those continents, by establishing the 
self-supporting system of colonization 
on such a scale, that as great an 
amount of emigration as the colonies 
can at the time accommodate, may at 
all times be able to take place without 
cost to the emigrants themselves. 

r Ihe importance of these considera¬ 
tions, as regards the British islands, 
has been of late considerably di¬ 
minished by the unparalleled amount of 
spontaneous emigration from Ireland; 
an emigration not solely of small 
farmers, but of the poorest class of 
agricultural labourers, and which is at 
once voluntary and self-supporting, the 
succession of emigrants being kept up 
by funds contributed from the earnings 




LIMITS OF THE PROVINCE OF GOVERNMENT. 580 


of their relatives and connexions who 
had gone before. To this has been 
added a large amount of voluntary 
emigration to the seats of the gold dis¬ 
coveries, which has partly supplied the 
wants of our most distant colonies, 
where, both for local and national in¬ 
terests, it was most of all required. 
But the stream of both these emigra¬ 
tions has already considerably slack¬ 
ened, and though that from Ireland has 
since partially revived, it is not certain 
that the aid of government in a sys¬ 
tematic form, and on the self-sup¬ 
porting principle, will not again be¬ 
come necessary to keep the communi¬ 
cation open between the hands needing 
work in England, and the work which 
needs hands elsewhere. 

§ 15. The same principle which 
points out colonization, and 'the relief 
ef the indigent, as cases to which the 
principal objection to government in¬ 
terference does not apply, extends also 
to a variety of cases, in which impor¬ 
tant public services are to be per¬ 
formed, while yet there is no indi¬ 
vidual specially interested in perform¬ 
ing them, nor would any adequate 
remuneration naturally or spontane¬ 
ously attend their performance. Take 
for instance a voyage of geographical 
or scientific exploration. The infor¬ 
mation sought may be of great public 
value, yet no individual would derive 
any benefit from it which would repay 
the expense of fitting out the expe¬ 
dition; and there is no mode of inter¬ 
cepting the benefit on its way to those 
who profit by it, in order to levy a toll 
for the remuneration of its authors. 
Such voyages are, or might be, under¬ 
taken by private subscription ; but this 
is a rare and precarious resource. In¬ 
stances are more frequent in which the 
expense has been borne by public com¬ 
panies or philanthropic associations ; 
but in general such enterprises have 
been conducted at the expense of go¬ 
vernment, which is thus enabled to en¬ 
trust them to the persons in its judg¬ 
ment best qualified for the task. 
Again, it is a proper office of govern¬ 
ment to build and maintain light¬ 
houses, establish buoys, &c., for the 


security of navigation : for since it is 
impossible that the ships at sea which 
are benefited by a lighthouse, should 
be made to pay a toll on the occasion 
of its use, no one would build light¬ 
houses from motives of personal inte¬ 
rest, unless indemnified and rewarded 
from a compulsory levy made by the 
state. There are many scientific re¬ 
searches, of great value to a nation 
and to mankind, requiring assiduous 
devotion of time and labour, and not 
unfrequently great expense, by persons 
who can obtain a high price for their 
services in other ways. If the govern¬ 
ment had no power to grant indemnity 
for expense, and remuneration for time 
and labour thus employed, such re¬ 
searches could only be undertaken by 
the very few persons who, with an 
independent fortune, unite technical 
knowledge, laborious habits, and either 
great public spirit, or an ardent desire 
of scientific celebrity. 

Connected with this subject is the 
question of providing, by means of en¬ 
dowments or salaries, for the mainte¬ 
nance of what has been called a 
learned class. The cultivation of 
speculative knowledge, though one of 
the most useful of all employments, is 
a service rendered to a community 
collectively, not individually, and one 
consequently for which it is, primd 
facie , reasonable that the community 
collectively should pay; since it gives no 
claim on any individual for a pecuniary 
remuneration ; and unless a provision 
is made for such services from some 
public fund, there is not only no en¬ 
couragement to them, but there is as 
much discouragement as is implied in 
the impossibility of gaining a living 
by such pursuits, and the necessity 
consequently imposed on most of those 
who would be capable of them, to em¬ 
ploy the greatest part of their time 
in gaining a subsistence. The evil, 
however, is greater in appearance than 
in reality. The greatest things, it has 
been said, have generally been done 
by those who had the least time at 
their disposal; and the occupation of 
some hours every day in a routine em¬ 
ployment, has often been found com¬ 
patible with the most brilliant achieve- 



590 BOOK V. CHAPTER XI. § 16. 


ments In literature and philosophy. 
Yet there are investigations and ex¬ 
periments which require not only a 
long but a continuous devotion of time 
and attention : there are also occupa¬ 
tions which so engross and fatigue the 
mental faculties, as to be inconsistent 
with any vigorous employment of 
them upon other subjects, even in 
intervals of leisure. It is highly de¬ 
sirable, therefore, that there should be 
a mode of ensuring to the public the 
services of scientific discoverers, and 
perhaps of some other classes of savans, 
by affording them the means of sup¬ 
port consistently with devoting a suf¬ 
ficient portion of time to their peculiar 
pursuits. The fellowships of the Uni¬ 
versities are an institution excellently 
adapted for such a purpose; but are 
hardly ever applied to it, being be¬ 
stowed, at the best, as a reward for 
past proficiency, in committing to 
memory what has been done by others, 
and not as the salary of future labours 
in the advancement of knowledge. In 
some countries, Academies of science, 
antiquities, history, &c., have been 
formed, with emoluments annexed. 
The most effectual plan, and at the 
same time the least liable to abuse, 
seems to be that of conferring Pro¬ 
fessorships, with duties of instruction 
attached to them. The occupation of 
teaching a branch of knowledge, at 
least in its higher departments, is a 
help rather than an impediment to the 
systematic cultivation of the subject 
itself. The duties of a professorship 
almost always leave much time for 
original researches, and the greatest 
advances which have been made in 
the various sciences, both moral and 
physical, have originated with those 
who were public teachers of them ; 
from Plato and Aristotle to the great 
names of the Scotch, French, and 
German Universities. I do not men¬ 
tion the English, because, until very 
lately, their professorships have been, 
as is well known, little more than 
nominal. In the case, too, of a lec¬ 
turer in a great institution of educa¬ 
tion, the public at large has the means 
of judging, if not the quality of the 
teaching, at least the talents and in¬ 


dustry of the teacher; and it is more 
difficult to misemploy the power of 
appointment to such an office, than to 
job in pensions and salaries to persons 
not so directly before the public eye. 

It may be said generally, that any¬ 
thing which it is desirable should be 
done for the general interests of man¬ 
kind or of future generations, or for the 
present interests of those members of 
the community who require external 
aid, but which is not of a nature to re¬ 
munerate individuals or associations 
for undertaking it, is in itself a suitable 
thing to be undertaken by govern¬ 
ment : though, before making the work 
their own, governments ought always 
to consider if there be any rational 
probability of its being done on what 
is called the voluntary principle, and if 
so, whether it is likely to be done in a 
better or* more effectual manner by 
government agency, than by the zeal 
and liberality of individuals. 

§ 16. The preceding heads com¬ 
prise, to the best of my judgment, the 
whole of the exceptions to the practical 
maxim, that the business of society 
can be best performed by private and 
voluntary agency. It is, however, 
necessary to add, that the intervention 
of government cannot always practi¬ 
cally stop short at the limit which de¬ 
fines the cases intrinsically suitable for 
it. In the particular circumstances of 
a given age or nation, there is scarcely 
anything, really important to the gene¬ 
ral interest, which it may not be de¬ 
sirable, or even necessary, that the 
government should take upon itself, 
not because private individuals cannot 
effectually perform it, but because they 
will not. At some times and places 
there will be no roads, docks, harbours, 
canals, works of irrigation, hospitals, 
schools, colleges, printing presses, un¬ 
less the government establishes them ; 
the public being either too poor to 
command the necessary resources, or 
too little advanced in intelligence to 
appreciate the ends, or not sufficiently 
practised in joint action to be capable 
of the means. This is true, more or 
less, of all countries inured to despo¬ 
tism, and particularly of those in which. 






LIMITS OF THE PROVINCE OF GOVERNMENT. 


there is a very wide distance in civili¬ 
zation between the people and the 
government : as in those which have 
been conquered and are retained in 
subjection by a more energetic and 
more cultivated people. In many parts 
of the world, the people can do nothing 
for themselves which requires large 
means and combined action; all such 
things are left undone, unless done by 
the state. In these cases, the mode in 
which the government can most surely 
demonstrate the sincerity with which 
it intends the greatest good of its 
subjects, is by doing the things which 
are made incumbent on it by the help¬ 
lessness of the public, in such a manner 
as shall tend not to increase and per¬ 
petuate but to correct that helpless¬ 
ness. A good government will give all 
its aid in such a shape, as to encourage 
and nurture any rudiments it may find 
of a spirit of individual exertion. It 
will be assiduous in removing obstacles 
and discouragements to voluntary en¬ 
terprise, and in giving whatever facili¬ 
ties and whatever direction and guid¬ 
ance may be necessary: its pecuniary 
means will be applied, when practi¬ 
cable, in aid of private efforts rather 
than in supersession of them, and it 
will call into play its machinery of re¬ 
wards and honours to elicit such efforts. 


591 

Government aid, when given merely 
in default of private enterprise, should 
be so given as to be as far as possible 
a course of education for the people 
in the art of accomplishing great 
objects by individual energy and volun¬ 
tary co-operation. 

I have not thought it necessary here 
to insist on that part of the functions 
of government which all admit to be 
indispensable, the function of prohibit¬ 
ing and punishing such conduct on the 
part of individuals in the exercise of 
their freedom, as is clearly injurious to 
other persons, whether the case be one 
of force, fraud, or negligence. Even in 
the best state which society has yet 
reached, it is lamentable to think how 
great a proportion of all the efforts and 
talents in the world are employed in 
merely neutralizing one another. It 
is the proper end of government to re¬ 
duce this wretched waste to the smallest 
possible amount, by taking such mea¬ 
sures as shall cause the energies now 
spent by mankind in injuring one 
another, or in protecting themselves 
against injury, to be turned to the 
legitimate employment of the human 
faculties, that of compelling the 
powers of nature to be more and more 
subservient to physical and moral 
good. 


TTTK KXD. 



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INDEX. 


FAOE 


Abbott on Sight and Touch. 10 

Acton’s Modem Cookery. 27 

Aikin’s Select British Poets. 25 

-Memoirs and Remains . 4 

Alcock’s Residence in Japan . 23 

Allies on Formation of Christianity. 19 

Alpine Guide (The) . 23 

Apjohn’s Manual of the Metalloids. 12 

Akaso's Biographies of Scientific Men .... 5 

- Popular Astronomy. 10 

- Meteorological Essays . 10 

Arnold’s Manual of English Literature.... 7 

Arnott’s Elements of Physics. 11 

Arundines Cami. 26 

Atherstone Priorjr. 24 

Atkinson’s Papinian. 5 

Autumn holidays of a Country Parson .. 8 

Ayre’s Treasury of Bible Knowledge. 19 

Babbaqb’s Life of a Philosopher. 4 

Bacon’s Essays, by Whately. 5 

-Life and Letters, by Spbddino. 4 

-Works, by Ellis, Spbddino, and 

Hbath . 6 

Bain on the Emotions and Will. 10 

-on the Senses and Intellect. 10 

-on the Study of Character. 10 

Baines’s Explorations in S. W. Africa .... 22 

Ball’s Guide to the Central Alps . 23 

-Guide to the Western Alps. 23 

Bayldon’s Rents and Tillages. . 18 

Black’s Treatise on Brewing . 28 

Blacklbt and Friedlander’s German and 

English Dictionary . 8 

Blaine’s Rural Sports. 26 

Blight’s Week at the Land’s End. 23 

Bonnet’s Alps of Dauphint;. 22 

Bourne’s Catechism of the Steam Engine.. 17 

-Handbook of Steam Engine. 17 

-Treatise on the Steam Engine... 17 

Bowdler’s Family Shakspeark. 26 

Boyd’s Manual for Naval Cadets. 27 

Bramley-Moore’s SixSistersof the Valleys 24 
Brandb’s Dictionary of Science, Literature, 

and Art. 13 

Bray’s (C.) Education of the Feelings. 10 

-Philosophy of Necessity. 10 

-(Mrs.) British Empire. 11 

Brinton on Food and Digestion. 28 

Br istow’s Glossary of Mineralogy. 12 

Brodie’s (Sir C. B.) Psychological Inquiries 10 

-Works. 15 

-Autobiography. 

Browne’s Ice Caves of France and Switzer- 15 

land . 22 

-Exposition 39 Articles. 18 

-Pentateuch . 18 


paob 


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Bull’s Hints to Mothers. 28 

- Maternal Management of Children. 28 

Bunsen’s Analecta Ante-Niccena. 20 

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-Philosophy of Universal History 20 

Bunsen on Apocrypha. 20 

Bunyan’s Pilgrim’s Progress, illustrated by 

Bennett. 16 

Burkb’s Vicissitudes of Families. 5 

Burton’s Christian Church . 3 

Cabinet Lawyer. 28 

Calvert’s Wife’8 Manual. 21 

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Chorale Book for England . 21 

Colenso (Bishop) on Pentateuch and Book 

of Joshua. 19 

Columbus’s Voyages. 23 

Commonplace Philosopher in Town and 

Country. 8 

Conington’s Handbook of Chemical Ana¬ 
lysis . 14 

Contanseau’s Pocket French and English 

Dictionary. 8 

-Practical ditto. 8 

CoNYBEAREand Howson’s Life and Epistles 

of St. Paul. 18 

Cook’s Voyages . 23 

Copland’s Dictionary of Practical Medicine 15 

-Abridgment of ditto . 15 

Cox’s Tales of the Great Persian War. 2 

-Tales from Greek Mythology. 24 

-Tales of the Gods and Heroes . 24 

-Tales of Thebes and Argos. 25 

Cresy’s Encyclopaedia of Civil Engineering 16 

Critical Essays of a Country Parson. 8 

Crowe’s History of France . 2 

D’Aubigne’s History of the Reformation in 

the time of Calvin. 2 

Dead Shot (The), by Marksman . 26 

Db la Rive’s Treatise on Electricity. 12 

Delmard’s Village Life in Switzerland .... 22 

De la Pryme’s Life of Christ . 20 

De Tocqubvjlle’s Democracy in America.. 2 

Diaries of a Lady of Quality. 4 

Dobson on the Ox. 27 

Dove’s Law of Storms. 11 

Doyle’s Chronicle of England. 2 

Ellice, a Tale. 24 

Ellicott’s Broad and Narrow Way. 19 

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by Manning . 20 

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Wrought Iron to Building. 17 

-Information for Engineers... 17 

--Treatise on Mills & Mill work 17 

F focikes’s Christendom’s Divisions. 20 

First Friendship . 24 

Fitz Roy’s Weather Book .. . 11 

Fowleh’s Collieries and Colliers. 17 

Freshfibld’s Alpine Byways . 23 

-Tour in the Grisons. 23 

Friends in Council. 9 

Froude’s History of England. 1 


Garratt’s Marvels and Mysteries of 

Instinct ... 13 

Gee’s Sunday to Sunday. 21 

Geological Magazine . 12 

Gilbert and Churchill’s Dolomite Moun¬ 
tains . 23 

Gilly’s Shipwrecks of the Navy . 23 

Goethe’s Second Faust, by Anster. 25 

Goodeve’s Elements of Mechanism ........ 16 

Gorle’s Questions on Browne’s Exposition 

of the 39 Articles. 18 

Graver Thoughts of a Country Parson .... 8 

Gray’s Anatomy. 15 

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Gwilt’s Encyclopasdia of Architecture .... 16 


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Hare on Election of Representatives. 7 

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-Tropical World . 12 

Hawker’s Instructions to Young Sportsmen 26 

Heaton’s Notes on Rifle Shooting. 26 

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and Quarterly Reviews . 13 

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Hints on Etiquette. 28 

Hodgson’s Time and Space. 10 

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Hoskyns’s Talpa. 17 

How we Spent the Summer . 22 

Howitt’s Australian Discovery . 22 

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■-Rural Life of England. 23 

-Visits to Remarkable Places. 23 

Howson’s Hulsean Lectures on St. Paul.... 18 
Hughes’s (W.) Geography of British His¬ 
tory . 11 

-Manual of Geography. 11 

Hullah’s History of Modem Music. 4 

-- Transition Musical Lectures .... 4 

Humphreys’ Sentiments of Shakspeare .... 16 


page 


Hunting Grounds of the Old World. 22 

Hymns from Lyra Germanica . 21 


Inoelow’s Poems.... 25 


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tyrs. 16 

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-Legends of the Monastic Orders 16 

Jameson and Eastlake’s History of Our 

Lord . 16 

Johns’s Home Walks and Holiday Rambles 13 

Johnson’s Patentee’s Manual . 17 

-Practical Draughtsman.. 17 

Johnston’s Gazetteer, or Geographical Dic¬ 
tionary . 11 

Jones’s Christianity and Common Sense.... 10 

Kalisch’s Commentary on the Old Testa¬ 
ment. 7 

-Hebrew Grammar. 7 

Kennedy’s Ilymnologia Christiana. 21 

Kesteven’s Domestic Medicine . 15 

Kirby and Spence’s Entomology .. 13 

Knighton’s Story of Elihu Jan . 24 

Kubler’s Notes to Lyra Germanica. 21 

Kuenen on Pentateuch and Joshua. 19 

Lady’s Tour Round Monte Rosa. 23 

Landon’s CL. E. L.) Poetical Works. 26 

Late Laurels. 24 

Latham’s English Dictionary . 7 

Lecky’s History of Rationalism. 3 

Leisure Hours in Town. 8 

Lewes’s Biographical History of Philosophy 3 
Lewis on the Astronomy of the Ancients ... 6 

-on the Credibility of Early Roman 

History. 6 

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- Essays on Administrations. 6 

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Liddell and ScoTr’sGreek-English Lexicon 8 

-Abridged ditto. 8 

Lindley and Moore’s Treasury of Botany 13 
Longman’s Lectures on the History of Eng¬ 
land . 2 

Loudon’s Encyclopaedia of Agriculture.... 18 

-Cottage, Farm, 

and Villa Architecture. 18 

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-Plants. 13 

-Trees & Shrubs 13 

Lowndes’s Engineer’s Handbook . 16 

Lyra Domestica . 21 

-Eucharistica... 16 

-Germanica.. 21 

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-Mystica. 21 

-Sacra. 21 


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-Miscellaneous Writings. 9 

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McCulloch’s Dictionary of Commerce. 27 

-Geographical Dictionary. 11 

Macfie’s Vancouver Island . 22 

Maguire’s Life of Father Mathew. 4 

-Rome and its Rulers. 4 

Maling’s Indoor Gardener. 13 

Massf y’s History of Englana . 1 

Massingberd’s History of the Reformation.. 3 

Maunder’s Biographical Treasury. 5 

-Geographical Treasury. 11 

_Historical Treasury. 3 

-Scientific and Literary Treasury 13 

-Treasury of Knowledge. 28 

_Treasury of Natural History .. 13 

Mabry’s Physical Geography . 11 

May’s Constitutional History of England.. 1 

Melville’s Digby Grand. 24 

-General Bounce. 24 

-Gladiators . 24 

__Good for Nothing. 21 

_Holmby House. 24 

-Interpreter. 24 

-Kate Coventry. 24 

-Queen’s Maries..... 24 

Mendelssohn’s Letters. 5 

Menzies’ Windsor Great Park. 18 

-on Sewage. 18 

Merivale’s (H.l Colonisation and Colonies 11 

_Historical Studies. 2 

_(C.) Fall of the Roman Republic 2 

_Romans under the Empire 2 

__on Conversion of Roman 

Empire.. 3 

Miles on Horse’s Foot. 2o 

_ On Horses’ Teeth . 26 

_ on Horse Shoeing. 26 

- on Stables. 26 

Mill on Liberty. 6 

_on Representative Government. 8 

_ on Utilitarianism. 8 

Mill’s Dissertations and Discussions. 6 

_ Political f conumy. 6 

_ System of Logic . 8 

_Hamilton’s Philosophy. 8 

Miller’s Elements of Chemistry . 14 

Monsell's Spiritual Songs. 21 

_Beatitudes . 21 

Montagu’s Experiments in Church and 
.. 19 

Montgomery on the Signs and Symptoms 

of Pregnancy... 

Moore’s Irish Melodies. 25 

- Lalla Rookh . 25 

-Memoirs, Journal, and Correspon¬ 
dence 3 

Poetical Works... 25 


Morell’s Elements of Psychology. 9 

-Mental Philosophy. 9 

Morning Clouds . 20 

Morton’s Prince Consort’s.Farms. L 

Mosheim’s Ecclesiastical History ..... 20 

Mollfr’s (Max) Lectures on the Science of 

Language...;••• • 

_ (K. O.) Literature of Ancient 

Greece . ? 

Murchison on Continued Fevers. lo 

Mure’s Language and Literature of Greece 2 


New Testament, illustrated with Wood En- 15 

gravings from the Old Masters. 

Newm an’s History of his Religious Opinions 4 
Nightingale’s Notes on Hospitals. 28 

Odling’s Course of Practical Chemistry .... 14 

_Manual of Chemistry .. 14 

Ormsby’s Rambles in Algeria and Tunis.... 23 


Owen’s Comparative Anatomy and Physio¬ 
logy of Vertebrate Animals. 

Oxen ham on Atonement. 


page 


Pacre’s Guide to the Pyrenees. 23 

Paget’s Lectures on Surgical Pathology.. 15 

-Camp and Cantonment . 22 

Pereira’s Elements of Materia Medica.... 15 

- Manual of Materia Medica. 15 

Perkins’s Tuscan Sculptors . 16 

Phillips’s Guide to Geology. 12 

-Introduction to Mineralogy. 12 

Piesse’s Art of Perfumery . 17 

-Chemical, Natural, and Physical 

Magic. 17 

-Laboratory of Chemical Wonders 17 

Playtime with the.Poets. 26 

Practical Mechanic’s Journal. 17 

Prescott’s Scripture Difficulties. 19 

Proctor’s Saturn .. 10 

Pycroft’s Course of English Reading. 7 

-Cricket Field . 26 

-Cricket Tutor. 26 

-Cricketana .. 26 

Reade’s Poetical Works. 25 

Recreations of a Country Parson, Second 

Series. 8 

Reilery’s Map of Mont Blanc. 22 

Riddle’s Diamond Latin-EnglLh Dictionary 8 

-First Sundays at Church . 21 

Rivers’s Rose Amateur’s Guide. 13 

Rogers’s Correspondence of Greyson. 9 

- Eclipse of Faith. 9 

- Defence of ditto. 9 

- Essays from the. Edinburgh Review 9 

- Fulleriana. 9 

Rooet’s Thesaurus of English Words and 

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Ronalds’s Fly-Fisher’s Entomology. 26 

Rowton’s Debater.. 7 

Russell on Government and Constitution.. 1 


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Scott’s Handbook of Volumetrical Analysis 14 

Sc rope on Volcanos. 12 

Senior’s Biographical Sketches. 5 

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Sewell’s Amy Herbert . 24 

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_Cleve Hall. 24 

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_Experience of Life. 24 

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--Ivors. 24 

-Katharine Ashton . 24 

-Laneton Parsonage. 24 

_Margaret Percival . 24 

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-Passing Thoughts on Religion.... 20 

_—Preparation for Communion. 20 

-Readings for Confirmation. 20 

_Readings for Lent. 20 

-Self-Examination before Confir¬ 
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-Thoughts for the Holy Week. 20 

-Ursula. 24 

Shaw’s Work on Wine. 28 

Shedden’s Elements of Logic. 7 

Short Whist... 28 

Short’s Church History.. 3 

Sieveking’s (.Amelia) Life, by Winkworth 4 

Simpson’s Handb ok of Dining . 27 

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Southey’s (Doctor) ....... 7 

_Poetical Works. 25 

Spohr’s Autobiography . 4 

Spring and Autumn...... fO 

Stanley’s History of British Birds . 13 

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Stephenson’s (R.) Life by Jeaffreson and ^ 

Stephen’s * Essays in ’Ecclesiastical Bio- _ 

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Thirlwall’s History of Greece ............ 2 

Thomson’s (Archbishop) Laws of Thought 7 

__(J.) Tables of Interest. 28 

_Conspectus, by Birkett. 15 

Todd’s Cyclopaedia of Anatomy and Phy¬ 
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Trollope’s Barchester Towers. 25 

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Twiss’s Law of Nations. 27 

Tyndall’s Lectures on Heat. H 

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_(R. A.) Hours with the Mystics 19 

Villari’s Savonarola . 4 

Watson’s Principles and Practice of Physic 14 

Watts’s Dictionary of Chemistry. 14 

Webb’s Celestial Objects for Common Tele¬ 
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Webster & Wilkinson’s Greek Testament 19 

Weld’s Last Winter in Rome . 23 

Wellington’s Life, by Brialmont and 

Gleig . 4 

___by Gleig . 4 

West on the Diseases of Infancy and Child¬ 
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Whately’s English Synonymes. 5 

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-Remains. 6 

-Rhetoric. 5 

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_Paley’s Moral Philosophy ...... 22 

Whewell’s History of the Inductive Sci¬ 
ences .. 3 

Whist, what to lead, by Cam ... 28 

White and Riddle’s Latin-English Dic¬ 
tionary. . .•••••• 6 

Wilberporcb (W.) Recollections of, by 

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Williams’s Superstitions of Witchcraft.... 9 

Willich’s Popular Tables . 28 

Wilson’s Bryologia Britannica. 13 

Wood’s Homes without Hands . 12 

Woodward’s Historical and‘Chronological 
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Yongb’s English-Greek Lexicon . 8 

_Abridged ditto. 8 

Young’s Nautical Dictionary . 27 

You att on the Dog . 27 

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